We are an instant gratification society. We want it and we want it now! Most investors are deathly afraid of a drawdown. We want to pick the exact bottom and then watch our stock jump 20% the next week .The reality is that there are only a few times when one can expect explosive moves higher.
You can get a violent repricing in a sector after an irrational selling climax takes valuations to absurd levels. Once the market calms down and sanity returns smart money quickly jumps in to scoop up great values. This is exactly what happened at the Oct. low in the mining sector.
The HUI jumped 100% in about three weeks.
Another time to look for explosive moves is when the fundamentals are rapidly improving for a sector. It just so happens that the cost of energy is a miners biggest expense. That cost was cut by almost 2/3 when oil crashed.
The third time to look for explosive rallies is during a bear market rally.
Now if one can spot a situation (very rare) when both extreme undervaluation and rapidly improving fundamentals occur at the same time ... look out.
At times like that we don't want to get lost in the technicals. At times like that we need to think like a value investor and scoop up the bargain before it disappears (and I guarantee it will disappear).
We are at an interesting juncture right now with the mining stocks. They have been consolidating the big move out of the Oct. low in a gently advancing channel. However if they can break out of that channel we could see another violent repricing event because lets face it, they are still way too cheap.
The question one has to ask themselves is whether they are going to let the technicals or the myriad bearish opinions talk them out of the deal of a lifetime, or are they going to think like a value investor and take advantage of the half price sale?
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