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Stock markets rebound from Wall Street’s worst week since October 2020, recouping losses caused largely by a retail frenzy – but signs point to more turbulent days ahead.
Last week, investors based on Reddit group WallStreetBets pushed up the prices of shares of heavily shorted companies, including GameStop, forcing hedge funds to hedge their shorts by selling big long bets. This, in turn, contributed to a massive sell off which brought down major indices.
But the rush to retail is not over yet. WallStreetBets has a new focus: SI00 money,
The precious metal is now up more than 11% on Monday since Friday’s close.
In our call of the dayIpek Ozkardeskaya, senior analyst at Swissquote Bank, said the surge in money might be more rational than some investors would have expected from a dynamic internet-based game. But she also warned that silver’s time in the sun could be short-lived.
In addition to causing squeeze, the investment thesis supported by the crowd at WallStreetBets is that silver is undervalued as it is widely used in high-tech applications like solar panels, which are positioned for growth at long term.
More: Miners surge as silver futures hit eight-year high amid retail interest
Ozkardeskaya said there was some validity in being bullish on silver prices. The precious metal is often traded in tandem with gold, which has seen a dramatic rally to all-time highs last year. Money has largely been left behind.
The gold-to-silver ratio, which describes the relationship between the prices of the two metals, historically converges to an average of 60 – meaning that the price of GOLD gold,
is often about 60 times as much as money.
Graphic by Marshall Gittler at BDSwiss.
Silver is currently trading at just over $ 29 an ounce, but Ozkardeskaya said it “might well have consolidated in the $ 30-32 band” as gold prices hiked. are held at close to $ 1,800 an ounce.
“Therefore, the rise in silver does not seem to be too high yet,” she said.
Also read: After 10 years of underperformance, commodities should explode. Here’s how to play the rally.
“So far, it’s not exactly the GameStop anomaly, but it’s a clue that retail traders who have just discovered their unit’s strength are out there, looking for new targets – and apparently larger, ”added the Swissquote Bank analyst.
“For the money though, the rally could be short-lived,” Ozkardeskaya said, noting that there is division between the posters on WallStreetBets, with some advising against betting on the rally. With the short push on GameStop, there was almost unanimous support for this trade and overwhelming solidarity on the forum.
“One important thing to remember in this game is that if you lose full support and momentum, it’s over,” Ozkardeskaya said. “The speculation rush is a successful game, but a dangerous one.”
The buzz
The commercial frenzy is expected to continue on video game retailer GameStop GME,
and other very short WallStreetBets favorites like the movie theater chain AMC AMC,
BlackBerry BB software group,
and retailer Naked NAKD,
– who have all jumped into pre-market trading.
The Robinhood trading app has placed purchase limits on the shares of all of these companies, although it has otherwise shortened its list of restricted shares.
Melvin Capital, one of the leading hedge funds with short positions targeted by WallStreetBets, lost 53% in January. He has now apparently “massively de-risked” his portfolio.
On the US economic front, the Markit Manufacturing Purchasing Managers’ Index for January is the first thing to come, at 9:45 a.m. EST, followed by the ISM Manufacturing Index. Construction expenses for December and motor vehicle sales for January are also due.
The CEOs of Exxon Mobil XOM,
and Chevron CVX,
discussed the merger of the two companies last year, the Wall Street Journal reported on Sunday. The shares of the two oil supermajors jumped almost 2% on the pre-market.
The Australian Prime Minister has suggested that software giant Microsoft MSFT,
Bing could replace Google’s search if it goes out of the country. Google, owned by Alphabet GOOGL,
threatened to make its search engine unavailable in Australia because of a bill that would force tech companies to pay to distribute topical content.
Outside the markets, the world is waking up to news of a coup in Myanmar, where head of government Aung San Suu Kyi and other politicians have been held. The military said it took control of the country for a year.
The steps
It looks like a positive day ahead as markets recalibrate after the frenzy of last week. Futures contracts on the stock markets are higher YM00,
ES00,
NQ00,
set for a strong open with Dow futures pointing up over 200 points after a previous bad week. Asian markets have joined NIK,
HSI,
SHCOMP,
while European markets increased SXXP
UKX,
DAX,
PX1,
Table
Graphic by Marshall Gittler at BDSwiss.
Our chart of the day, by Marshall Gittler at BDSwiss, shows exactly who is shorting the money – and he doesn’t really know who WallStreetBets is targeting. It is the silver producers who are short in the futures market, the analyst said, but it is normal for them to be short as they are selling their output up front to lock in prices.
Random readings
Naked mole rats have unique dialects and are “incredibly xenophobic,” a study finds.
Research reveals that singing in some languages could spread the coronavirus that causes COVID-19 more easily than others.
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