Selasa, 02 Februari 2021

Must Read: Why You Need to Avoid the Short Squeeze Plays

The circumstances with the silver rally are different to what happened with the GameStop melt-up, but they both still point a highly volatile situation.
Louis Navelliers Market 360

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Why You Need to Avoid the Short Squeeze Plays

Louis Navellier
Louis Navellier

Over the weekend, day traders picked another target to short squeeze: silver.

As you may recall, they first set their eyes on GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC) after noting the massive short positions the big hedge fund traders had taken in the companies. For example, hedge funds were shorting a stunning 140% of GME’s float.

As the traders piled in, GME spiked more than 2,400% from December 31, 2020 to its 52-week high of $483 on January 28, 2021. AMC saw a similar surge, rising 860% from December 31, 2020 to its 52-week high of $20.36 on January 27.

Unfortunately, GME and AMC are falling back to earth now, with the stocks down about 55% and 40%, respectively, this week. The reality is both companies have weak fundamentals, which is why I cautioned investors against investing in GME and AMC in my Market360 article last week.

Just like with GME and AMC, investors bought silver hand over fist. In fact, online marketplaces for silver, like Money Metals and APMEX Inc., quickly grew overwhelmed with a rush of traffic and began to halt processing orders due to the increased demand until the international markets opened again on Monday.

On Monday, prices for silver started soaring to levels not seen since February 2013, climbing as high as $30.35 per ounce. Silver futures increased more than 10% and overtook other precious metals like gold, which rose 0.9%.

Shares of miners also trekked higher on Monday, including First Majestic Silver Corp. (AG), which rose as high as 24%, and Pan American Silver Corp. (PAAS), which climbed up 16%. However, First Majestic Silver fell right back down over 24% today, while Pan American Silver dropped over 13%. Silver slipped more than 8% today, while the S&P 500, Dow and NASDAQ rallied more than 1%.

Interestingly, unlike with the GameStop situation, Commodity Futures Trading Commission data show hedge funds and large investors overall are taking long positions on silver, meaning they believe the price will increase, according to the Wall Street Journal. Other silver industry insiders like producers, merchants and banks do have an overall short position on silver, though they often do this to maintain a hedge.

In addition, industry analysts are saying the world’s silver supply, including $44 billion worth of troy ounces stored by CME Group’s Comex and the London Bullion Market Association, is currently more than sufficient to meet the growing demand. The Chicago Mercantile Exchange is also raising its margin requirements to trade silver futures after the end of trading day.

The bottom line: The circumstances with the silver rally are different to what happened with the GameStop melt-up, but they both still point a highly volatile situation.

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Fragile Markets Exposed

What this so-called Reddit short squeeze has exposed is how fragile markets can be when investors don’t follow the fundamentals and instead just guide themselves by spotting order imbalances.

And because interest rates are so low, people are not paying attention to price-to-earnings ratios and other fundamentals like they normally would.

Silver is well known as being historically volatile and thinly traded. In other words, it’s a mixed bag and the price runup is likely a bubble waiting to be pricked, which is what we’re seeing now with GME and AMC. It’s why I recommend short squeezes be avoided.

I, however, do pay attention to price-to-earnings ratios and other fundamentals. Thanks to my Project Mastermind system, I have found that there are eight key qualities that super-performing stocks share.

This system has helped me find fundamentally superior stocks that continually post strong earnings results. In fact, for the fourth-quarter earnings season, eight of my Accelerated Profits Buy List companies have released results from the latest quarter so far, and all eight topped analysts’ earnings forecasts.

Even more impressive: The average earnings surprise is a stunning 68% right now. So, the fourth-quarter earnings season is shaping up to be a truly spectacular one for my Accelerated Profits stocks. They are characterized by 95% average forecasted sales growth and 423.9% average forecasted earnings growth, so I look for these companies to continue posting wave-after-wave of earnings beats.

Speaking of earnings, my Project Mastermind system flagged two more stocks that should post stunning results for their most-recent quarters. The first is what I expect to be the leader in the exciting electric vehicle (EV) industry, and the second has posted an average 362% earnings surprise in the past two quarters—and it has incredible forecasted earnings growth.

I am releasing my Buy Alert for these two companies today, as I look for their earnings reports to dropkick and drive the stocks higher. I don't want you to miss out before these stocks really take off, so make sure to sign up here now to get my buy advice.

Sincerely,

Signed:
Louis Navellier

P.S. For full details on my Project Mastermind system, you can watch a special video briefing here. I gave everyone a glimpse at my system and revealed my number-one stock pick. This company smashed analysts’ expectations for its most-recent quarter, reporting a whopping 76.9% earnings surprise and 9.5% sales surprise. Get the name by clicking here.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:


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