Tuesday, November 18, 2014

Gold, Silver, Steel Long Opportunities

I made a video over the weekend covering in detail the technical situation in gold and gold stocks, silver, steel stocks, and gave some ideas on individual companies to look at for trading purposes.  However, the jack on the audio is not connecting and the video has no sound so I will give a brief recap here.

It appear likely that gold and silver have made bear market bottoms and the recent explosive upward days in those markets shows what I believe is the beginnings of a swift short covering rally which will lead to directional gains over the coming weeks in gold, silver, and related miners.

Specific stocks that I like the looks of at this time are MT, SID, NG, FSLR, SPWR, MGM, HHS for longs.

ETFs I like right now are GDX, SIL, UNG, SLX, DBA for longs

In order to find potential trades at this time I would recommend using screens with the following parameters:

1) Screen the gold, silver, and steel industries for stocks with price/book ratios less than 1.0
2) Screen the same industries and sort them by dividend yield.  The highest dividend yields may be some of the bigger companies which are undervalued and are potential multi year holds.  Screen these companies for tradable patterns or technical set-ups
3) Screen the above mentioned industries for short interest ratio.  The higher the short interest ratio, the more likely there will be forced buying added to the expected underlying rally in the metals and shares.  The higher short interest can lead to fantastic short squeezes but also generally coincides with increased volatility, so from a risk/reward basis it may not mean much.  But from an investment standpoint, if you created a basket of the highest short interest stocks in these industries right now, I think it will out perform the underlying metals or miner ETFs.

Let me know if you need any other further info or analysis here and I will try to do it in timely fashion as with a swift short-covering rally, each day that passes may significantly shift the near term reward/risk in a less favorable direction.


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