Seasonal tendencies in financial markets are just that, tendencies. Just because a particular pattern has occurred 9 of the last 10 years doesn't mean it will happen again the next year. In fact, markets have a tendency to deviate from the norm in spectacular fashion (see last year's XIV blow-up).
The old market adage "sell in May and go away" has a special meaning in the junior resource sector; resource investors have a habit of selling in the spring and going away for the summer before returning towards the end of August. This seasonal tendency is clearly exhibited by the following statistics on the Junior Gold Miners exchange-traded fund, the GDXJ:
It's not difficult to see that May is the worst month of the year for the GDXJ, while August is typically a great month for junior gold miners. This pattern doesn't play out every year, however, there is a very strong tendency for precious metals and mining shares to put in a major low at some point during the summer (usually June or July) before rallying into the fall (during the end of August and September).
This means that May and June tend to be soft months for the resource sector. This seasonal tendency also makes sense because junior resource companies are typically launching summer exploration programs in May/June and there is less news flow across the sector until at least the end of July. As drill results start to pour in during August and September these junior exploration stocks have a tendency to rise.
In the gold sector there is another seasonal tendency which impacts demand for the precious metal - Indian wedding season begins in September and lasts until February. Indians love their gold, and gold gifts are an integral part of any Hindu wedding in India. It's no accident that August through February is by far the strongest stretch of the year for gold prices historically.
These seasonal patterns tend to affect market participant psychology - in an effort to get ahead of the crowd it's possible that May has come early this year, as market participants exit junior resource stocks and precious metals a few weeks early:
TSX-Venture Composite (Daily)
The TSX-Venture Composite (broad index of small/micro cap Canadian stocks largely consisting of cannabis and junior mining shares) had a good start to the year in the first quarter of 2019. However, the Venture looks to have peaked towards the end of March and has begun to roll-over this week.
The GDXJ is down six straight trading sessions as I type these words and some may argue that a head & shoulders topping pattern has now been completed. Support down near $29.25 will be critical for GDXJ.
So far this year it looks like May has come a few weeks early in the junior resource sector and some of the losses we have seen recently in individual juniors, such as Sokoman Iron (-42% yesterday) and Miramont Resources (-77% on March 28th) offer a distinctly bear market flavor. We are also seeing dozens of notable junior resource shares breaking down to multi-month lows or even fresh 52-week lows (Garibaldi, Sabina, etc.).
While it might be really easy to get bearish and pessimistic on junior miners right now, it's important to remember that corrections and sentiment resets happen several times a year and constitute a normal and healthy part of market cycles. The question we will be asking ourselves over the coming days is "Is this a normal correction/sentiment reset OR is it the beginning of a much deeper decline?" - odds favor the former but we can never rule out the latter.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.