Smallcap Discoveries: Weekly Update: January 15

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Subject: Smallcap Discoveries: Weekly Update: January 15 - 19

January 15 - 19

Market Commentary

Markets

Don’t let anyone tell you we are in a bear market. Major indexes have been in a raging bull market for about 14 months. The DOW trading to an all time high this past week and Nasdaq is within a chip shot to its all time high and is up 51.7% since October 2022.

This week the DOW climbed 0.7%, Nasdaq was higher by 2.3% and the TSX fell 0.4%.

Financials

Treasury and bond yields trended a bit higher for the week but showed some signs of decline by week’s end. We’ve seen a decent bounce in both yields and US dollar on some surprisingly stronger than expected inflation data. Still, it’s hard to imagine rates climbing much from here as there is plenty of data showing global economic weakening along with some lower trending data in the US.

Canadian rates bounded higher as well in lock step with US yields even though there is plenty of data suggesting the Canadian economy is weakening even faster. Again, here I expect rates to start topping out soon and begin to trend back lower.

Commodities

Most commodities I follow were quiet this past week. Oil traded in a very tight trading range closing the week almost unchanged from last week. I saw a few reports that the US SPR was buying back oil to replenish the reserves. There just doesn’t seem to be enough outside buying demand to spark prices higher at the moment.

Natural gas was the exception. With the cold snap that we saw this past week expectations were that natural gas may catch a solid bit but early expectations turned to fear as natural gas was sold off by week’s end driving prices to near year lows. How many times have I referred to natural gas as the “widow maker”?

Stocks

There is an old saying that markets love to “climb a wall of worry”. Bears have had plenty of arguments as to why the markets would crash in the past 14 months but the markets have been able to shake off all these arguments. This is a bull market, how long it lasts is anybody’s guess but it has crushed a lot of the intelligent sounding bears in the past year on the way to new highs.

Renewed buying on major US equity indexes drove the CNN Fear and Greed index back up a few points and while not at extremes still indicates markets are a bit frothy. I’m much more comfortable being short term bullish and buying when the needle is in the extreme fear - fear level.

Some of the buying has continued to trickle down into some of our microcaps. It seems some of the same names keep popping up on the new 52-week high list.

Thermal Energy (TMG.V) keeps me smiling as once again it broke to a new 52 week high this week. It actually made a new high every day this past week and is now trading at levels not seen in over 15 years.

Now while I’m happy to see it climb like it has, it is in danger of going parabolic, something I prefer not to see as that tends to stop a solid move dead in its tracks. The stock is due for a healthy pullback so I expect we may see a healthy consolidation in price soon.

So while TMG.V is doing its thing we are working hard to try and find the next fat pitch. They come when they come, never when you want them, so as usual, patience is warranted right now until we find the right one to take a swing at.

Other notable names that I’ve mentioned in the past hitting 52 week highs include Foraco (FAR.T) and Knight Therapeutics (GUD.T). Both stocks have been trending strongly higher in recent weeks.

One stock on the other end of that trend is Zedcor Inc. (ZDC.V). This profitable security hardware and service provider has seen its shares hitting new 52 week lows in price. While I’m never a fan of buying at the 52 week low, I’m watching this one closely for a possible reason to be back in buying.

Part of the reason why this week’s update is getting out to you a bit late tonight is that I spent a good part of the day at the Vancouver Resource Investment Conference here in Vancouver. While you would rarely find me at a resource conference I went down to meet a few investors that were in from out of town and also to get a pulse on investor attitudes towards the sector as it’s usually a pretty good barometer on retail investor activity in small stocks, not just mining juniors.

I ran into a number of friends and colleagues that, when they saw me, laughed and joked they never expected to see me there. I haven’t touched a mining company in decades and have too many scars to ever want to try my hand at the sector again…

I was actually surprised at the attendance. There were more people out today than I expected and it was a pretty miserable day weather wise so, either people were tired of staying inside on a rainy Sunday or the interest in junior mining is starting to come back. Uranium and gold seems to have been the buzz and we’ve been seeing it in stocks as these two elements are driving most of the stocks hitting 52 week highs in the mining sector.

The other thing that was hard to ignore was how many people of my age and older dominated the crowd. I didn’t see a lot of younger investors in the crowd, something that has become noticeable in recent years as junior miners seem to be the preoccupation of the older crowd. My guess is that if this was a crypto currency convention we’d see a dramatically different age demographic.

Anyway, it was nice to be able to meet with some friends and run into some old faces I haven’t seen in many years from my days in the trenches of the Vancouver investment scene.

To your wealth,

Paul and Trevor

Buys and Sells This Week