The prices of many junior mining stocks have recently dropped so much in price that perhaps we need to evaluate what has transpired and how investors address it. In our view, their price declines may present one of the best buying opportunities in years. It’s the old poem: “When prices are high, they run to buy, when prices are low, they let them go.”

Time and again, the majority of investors in juniors and most mining stocks lose money. Why? THE PRIMARY REASON IS that they consistently invest AFTER mining stocks have already had substantial price moves up; they rarely ever invest when the mining stocks are selling at their multi-year price lows when they truly offer exceptional opportunities for substantial capital gains. We could be wrong but that is exactly what our analysis suggests is happening today.

If an investor addresses the situation today, does the analysis and exhibits patience, the potential for exceptional profits is at hand as the market has now put so many of the mining stocks “on sale”! Moreover, many seem to be in point of fact on sale using such gauges as historical valuations, projects, reserves, resources, cycles, officers and directors buying and technical analysis. Examining junior candidates using those research tools may provide an investor with some astonishing bargains.

 

When a stock breaks below its support and sells below its historical price range; it can go into a severe sell off where little or no historical buying support occurs or has existed in the past. It is in a “Bottomless Pit” area where it may drift down or plunge with no substantial bids. Shares are being sold by frustrated shareholders to “just get me out of that darn stock” with little forethought. And it does not have to occur with heavy volume, it can be very on low volume.

 

And often that stock(s) is literally being thrown away at a very low price and at extremely low valuation levels using any of several different fundamental valuation gauges. Keep in mind that a bottom is made when the last frustrated investor in a stock sells his or her shares, often in utter frustration. And at the same time another investor may arrive on the scene saying to his or her self, “what a great opportunity this is to invest in this stock while it is so undervalued.”

 

We have said this before; there are dramatically less market makers (specialists) at the brokerage houses and banks that would accumulate stocks on corrections which would provide stocks with some price support during declines. This is one result of the harsh fact that today there is far less, if any, research coverage for most mining stocks which has an adverse effect on the mining stocks. Volatility, particularly to the downside, has increased dramatically. Bear in mind that if investors are unaware of a stock, they do not invest in it.

 

 As well, you can see today that many stocks drop on very light volume to levels below what might be their historical bottoming levels. Observe volume on declines and you can see that often far less selling volume brings a stock(s) further down in price than brought it up on the buy side. Again, the disappearance of market makers and pro traders has brought the junior mining stocks sharply lower. It is almost chaotic at times.

 

While the support and stability sometimes offered by market makers and some professional traders has disappeared, it may have created an exceptional opportunity since the investor may have the chance to accumulate shares at extremely low prices that previously were purchased by the market makers and professional traders. In recent years over 90% of the volume in junior miners has been done by professional traders. That high volume “day trading” type volume has contributed nothing for that matter. Stocks should have a reasonably higher percentage of their volume represented by longer term investors who “will put the mining stock away” and patiently await fundamental developments such as exploration and drill results. Too much volume, overtrading and excessive short selling can destabilize any stock(s), particularly juniors.