Commodity Investor Q&A
With Matt Badiali
June 24, 2009
Q: What's your take on crude oil over the next few months? Shouldn't it have gone up on all the Iran craziness? – J.H.
A: The fact that oil didn't leap up with delight at riots in Iran should make oil investors quake with fear. Iran produces about 5% of the world's oil every day. Its populace is rioting... and yet the price of oil fell 3%.
As my colleague Brian Hunt pointed out, it's a big bearish sign when an asset cannot rally on bullish news. We could see oil prices go into decline any minute. Let me show you what I see...
From February 13 to March 27, crude shot up 40%. After taking a break for a couple of weeks, it rocketed up another 43% in two months. In all, the price of oil rose 92% in just four months. That doesn't jibe well with what's happening with oil supply and demand.
You see, our crude oil supplies are well above the average for June. We're usually around a billion barrels of supply... We're about 10% higher than that right now, and almost 20% above last year's supply. (You can see a chart of oil in storage here... It's the third one down.)
The U.S. consumes about 25% of the world's oil supply, so a glut here is going to affect worldwide oil markets. With all that extra oil sitting around, we either need a massive increase consumption OR falling oil prices. Since the economy is a train wreck, I don't see sudden rabid oil consumption on the horizon.
So all of you gung-ho traders who went long oil funds like USO or DXO back in February better keep a sharp eye on your trailing stops. Take some profits now... and get ready to bail out.
Q: Matt, my silver stocks have been clobbered in the past few weeks! What's happening? – A.L.
A: You've gotta love silver stocks... The shares should come with seat belts.
Take Silver Standard (SSRI), for example. This is a $1.3 billion silver miner run by a top-flight team. It has over a billion ounces of silver resources. In short, it's one of the best silver miners in the industry. But the stock still does crazy things.
From August 2007 to November 2007, its share price rose 63%... By mid-December, it had turned around and fallen 28%. Silver Standard shareholders endured a roller coaster over the last two years. Take a look...
| Start Date |
End Date |
Days |
Price Change |
|
8/28/07
|
11/6/07
|
70
|
+63%
|
|
11/6/07
|
12/19/07
|
43
|
-28%
|
|
12/19/07
|
1/3/08
|
15
|
+22%
|
|
1/3/08
|
2/8/08
|
36
|
-21%
|
|
2/8/08
|
3/5/08
|
26
|
+20%
|
|
3/5/08
|
5/1/08
|
57
|
-34%
|
|
5/1/08
|
5/22/08
|
21
|
+22%
|
|
5/22/08
|
10/28/08
|
159
|
-79%
|
|
10/28/08
|
2/9/09
|
104
|
+223%
|
|
2/9/09
|
3/10/09
|
29
|
-41%
|
|
3/10/09
|
6/2/09
|
84
|
+105%
|
As you can see, the moves are fast and spectacular. And this is the ExxonMobil of the silver industry. Imagine what the juniors do.
So investors interested in silver miners need to have a strong stomach... and they need to use one simple strategy to protect themselves: a trailing stop.
Because silver miners move so much so fast, I like to use a wide, 50% trailing stop. That way, we can weather some of the smaller declines and stay in position to catch the huge moves up... while avoiding a catastrophic decline.
As for the recent fall in silver miners, it's an opportunity for investors. We know these are incredibly volatile stocks, so a sharp drop is a great time to jump in. Once the uptrend reasserts itself, the rewards will be huge...
For example, I recently told my S&A Oil Report subscribers about a penny silver stock with the potential for 1,000% gains. (To read more about the Oil Report, click here.)
Good investing,
Matt
P.S. If you've got a question about commodities or commodity producers, send an e-mail to the Commodity Q&A. I answer reader questions every Wednesday in Growth Stock Wire. Keep in mind, I can't provide individual investment advice. |
|
|
| • |
Capstead Mortgage hits a new high... fellow "virtual banks" Annaly, Hatteras, and MFA all in uptrends. |
| • |
Regional banks drop as three suspend TARP repayment... sector fund KRE down 25% since May high. |
| • |
Refining sector struggles... Valero, Holly, and Sunoco near three-month lows |
| • |
Earnings today... Bed Bath & Beyond, Monsanto, Nike, Paychex. |
|
Last |
Change |
52-Wk |
| S&P 500 |
893.04 |
-3.06% |
-32.24% |
| Oil (USO) |
36.25 |
-4.53% |
-66.79% |
| Gold (GLD) |
90.54 |
-1.48% |
+1.79% |
| Silver (SLV) |
13.54 |
-3.22% |
-21.26% |
| U.S. Dollar |
80.42 |
-0.51% |
+9.51% |
| Euro |
1.40 |
+0.95% |
-9.86% |
| VIX |
31.17 |
+11.36% |
+36.29% |
| HUI |
318.27 |
-6.36% |
-23.29% |
| 10-Year Yield |
3.69% |
-0.09 |
-0.40 |
|
| Company |
Sym |
Industry |
Capstead |
CMO |
virtual bank |
Wilber |
GIW |
bank |
Health Fitness |
FIT |
health mgmt |
Calavo Growers |
CVGW |
agriculture |
ChinaEdu |
CEDU |
for-profit ed |
Intellon |
ITLN |
semiconductors |
|
| Company |
Sym |
Industry |
Susquehanna |
SUSQ |
bank |
OSI Pharmaceuticals |
OSIP |
biotech |
BancTrust Financial |
BTFG |
bank |
Clayton Williams Energy |
CWEI |
oil & gas drilling |
Pacific Capital |
PCBC |
bank |
CardioNet |
BEAT |
medical devices |
First Commonwealth |
FCF |
bank |
S&T Bancorp |
STBA |
bank |
PRG-Schultz |
PRGX |
business services |
Pinnacle Financial |
PNFP |
bank |
Callaway Golf |
ELY |
golf equipment |
First Midwest |
FMBI |
bank |
Fulton Financial |
FULT |
bank |
|
|
