Odds Favor Junior Miners Outperforming In 2014

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 |  Includes: ARVCF, CCJ, DNN, GDX, GDXJ, SIL, URA
by: Jeb Handwerger

There is an old saying in the market that as goes January so goes the year. This adage has been right close to 75% of the time. Big money follows the January effect. So what does 2014 tell us so far?

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The S&P 500 is down in negative territory, while the junior gold miners (NYSEARCA:GDXJ) and the silver miners (NYSEARCA:SIL) have soared. The junior gold miners are up close to 30% and the silver miners are up close to 20% year to date. Odds are favoring real hard assets outperforming in 2014 over the overbought equities. The junior gold miners are finally breaking above the 200-day moving average.

In addition, The TSX Venture Index is finally making a bullish golden crossover of the 50- and 200-day moving average. I wrote in a recent article that this is the first time in three years that the junior miners are beginning to outperform the blue chips.

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In addition to the junior gold (NYSEARCA:GDX) and silver miners, watch the uranium miners (NYSEARCA:URA). The Japanese restart of nuclear reactors to boost the junior uranium miners.

There was a major election for Tokyo governor this past weekend where a pro nuclear candidate was elected into office. We expected a major victory for the pro-nuclear candidate as Japan has been suffering with soaring electricity costs and rising air pollution as they import record amounts of fossil fuels. The Japanese restart could be the catalyst investors were waiting for to signal a new bull market in the uranium price. Look for a breakout above $40 to determine the beginning of the next leg higher. I believe the uranium miners are still undervalued despite many miners making major gains off 2013 lows such as Cameco (NYSE:CCJ), Areva (OTCPK:ARVCF) and Denison (NYSEMKT:DNN).

The recent Japanese election could spark gains in the uranium miners as the victor has a pro-nuclear stance and was supported by Japanese Prime Minister Abe. He won by a large margin indicating the Japanese people strongly support the restart of nuclear reactors.

Many of the large uranium miners cut back production due to a low uranium spot price. Paladin (OTCPK:PALAF), Cameco, Rio Tinto (NYSE:RIO) and Areva have all cutback production.

The Japanese restart combined with a short supply from mine cutbacks could cause a price spike in uranium and boost the value of economic uranium mines.

Countries such as Australia have lifted a ban on uranium mining in order to support clean energy growth in emerging economies such India and China. The State Of Wyoming is financing junior uranium producer to supply a major U.S. shortfall of domestic uranium production. The Athabasca Basin in Canada is attracting major capital as it has the highest grade uranium mines in the world.

In conclusion, the powerful January effect tells us the odds are in favor of the junior gold, silver and uranium miners. Equities such as the Dow (NYSEARCA:DIA) and S&P500 may be flat to down but the junior mining equities could outperform in 2014.

Disclosure: I am long DNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.