Is the TSX Venture on the Brink of a Breakout? The Next Super-Cycle

Millionaires and billionaires were minted during the last metals super-cycle. Are we on the verge of the next one? We look to the TSX Venture chart for clues.

NASA Mars Mission Prompts A Far-Off Look at the TSX Venture Index: Is a New Super-Cycle Coming?

With the impact of COVID on our lives, there has been little to cheer about. NASA changed that when its Mars mission captivated the imagination of a world full of “shut-ins.” Now, someone somewhere is controlling a small “helicopter drone” on a distant planet. Science fiction has become a reality.

This bold, scientific achievement made me think about how being far away from something doesn’t diminish your ability to see things from a different perspective. With that thought in mind, it was time to take a long look back at the TSX Venture Index, home of small, and sometimes struggling, resource companies.  

These enterprises are a true barometer of investor sentiment.

A look at the weekly chart shows how China’s seemingly insatiable demand for metals created what could only be accurately described as a “super-cycle.” The period from 2002 – 2007 saw billions of dollars flow into the resource sector. 

The impact of this massive investment was reflected in the TSX Venture Index, making record new highs around the 3300 level.

TSX Venture index stock chart analysis may 2021

The question on everyone’s mind is a simple one: “Is another Super-Cycle for Metals about to Start?”

One of the reasons given for the steep rise in metals prices, especially copper, is that miners are going to need to see “higher for longer” prices before making large capital expenditures to bring new and much lower grade deposits into production.  

Copper and copper stocks have caught the attention of investors. It is easy to see why. The “new green economy” runs on and through copper. 

There is no other way to it.

When we look at the chart for the TSX Venture Index, the place where investors finance junior companies to look for and find new copper deposits, we see that the index has cleared an important support/resistance level of 900.  

In charting lingo, there are two competing axioms. 

One is “highest volume is highest price,” and the other is “volume precedes price.” It takes experience and a bit of logic to figure out which one applies when. 

Logic tells us that the world’s global economy is starting to shake off the effects of a COVID-induced shut-down and is well on its way to a re-start. Governments have opened the funding spigot and have no fears of the resulting inflation that it will cause.  

We know that mining exploration/development/production is a “long game.” A quick turnaround from discovery to production in the mining business is 5 – 7 years. Most projects have a longer timeline, in the range of 7 – 10 years.

So, what does all of this mean for investors in small resource stocks?

The answer is self-evident.  

By all accounts, we are just at the very start of what could easily evolve into another metals super cycle. The “China Super Cycle for Metals” in the early 2000s was driven by Demand. The next one will be driven by a true lack of supply coupled with a resurgence in demand after a period of time when inventories were depleted. This is the “perfect storm” for much higher prices.

Regular readers of EQUEDIA were “ahead of the curve” by reading these two articles:

July 2020.

September 2020.

Summary and Wrap Up

We will monitor the progress of copper as it continues its climb to new highs. Technical analysis often requires a “re-test from above” to confirm chart moves – especially break-outs beyond previous all-time highs.  

Currently, copper is at a break-out level.

Concurrently, the TSX Venture Index has moved up and through a key support/resistance level. The index is sitting at about 1/3 of its previous high, so there is lots of room for improvement.

Small resource stocks can make outsized gains when there is a “wind at their back,” as we have seen in the past during the China Super Cycle. 

After years and years in the Horse Latitudes, finally, the winds of fortune have started to stir, and new opportunities are beginning to appear. It’s time to play the long game with small stocks.

-John Top, the technical trader

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