Silver – Euphoria - David Morgan

First, the junior market does do well in the initial stages of a new bull market. This is pretty much self-evident. Many companies with merit and many without merit did rise in price dramatically during the first leg up in the precious metals bull market. Also, let me be clear that exceptions can always be found; we are speaking in general terms here. The bull market was similar in the 1970s and I have written about it in the past. Once we enter the optimistic phase of this market, which right now I am forecasting to begin around the August to September 2008 timeframe, we will see the junior sector perk up.

However, some junior mining companies may have run out of money and/or given up. Near the end of the cycle where we enter the most lucrative but also the most dangerous phase of the market, the “euphoric” phase, we will see the junior market absolutely fly. The reason is psychological—people love cheap stocks, and many of the best companies in the industry will be trading well over $50 per share and many well above that. Those who are very late to the party will buy stocks based upon the “story” surrounding the stock and also the price.

During this euphoric mania it is possible to see penny stocks go from prices under a dollar to $10, $20, and even $30 per share. This is the exception, not the rule, but in general terms the junior market is so small and the amount of people flooding into the market so great that almost all “cheap” mining stocks get pushed higher.

The key is to not get too greedy, and take profits off the table—do not expect to sell at the exact top. As I have taught all along, especially for those who trade the futures market, it is always better to sell into strength. The euphoria lasts a very short time, usually a matter of weeks. At that time, it will be most difficult for me to not only remain objective but also to put up with the amount of e-mails that I will receive telling me I am wrong, the market is “different” this time, and I have become a traitor to the cause by even suggesting selling. However, I am fully prepared and plan to do the very best job possible, regardless of how much flack will be flying my way at the top. I still expect the ultimate top to be in the 2010-2012 timeframe, subject to change, as we get closer.