We've got a few issues to cover in today's report, so let's move right to the charts.
First on the docket is silver.
Can't get around the fact that silver's on everyone's minds – and lips – these days, and certainly inside quite a few pockets, too, as the following chart reveals:
Folks are quite simply buying silver American Eagles out the wazoo. For two years now the fever has been on, and the latest infectee is none other than the most visible market commentator on the planet, Jim Cramer. Check out this video, wherein the man on 'The Street' explains that 'spot' silver is no longer a guide to what you'll have to pay for the real thing.
http://www.thestreet.com/video/11066727/cramer-buy-physical-silver.html
Sorry to say it, but now that Cramer has gone public, we fear the worst. Yes, we admit we didn't believe silver was a good investment at $30, and now that it's 20% higher we believe anyone who doesn't take profits here is also wacked. Yes, we'll take heat for it. Yes, we may have to go back into hiding. But there's going to be one big, mean reversion in the near term that's going to slap this contract from the weakest hands and provide a great buying opportunity for those with stomachs of silver?
Expect the selloff to be precipitous and vertiginous. Not for those without a good supply of Dramamine.
Does Cramer's Timing Mean Anything?
So mainstream is the silver bug these days that it couldn't have waited a whole lot longer to get approbation from the likes of Jim Cramer. And count on it, Cramer's got influence. That influence extends to some of the weakest minds in the investment universe. There will no doubt be a great surge of latecomers entering the market now, eager to cash in on the silver bull's unbelievable profitability. Alas for them. For it will have been too late.
Here's a look at the iShares Silver Trust ETF (NYSE:SLV) weekly chart for the last two and a half years – from what was then a very deeply oversold bottom to the present.
SLV's price action is near parabolic. Following Mr. Jim's advice now and you'll end up eating field mice on a spit.
After a 100% climb in the last six months, on double the weekly trading volume, with RSI levels that correspond at best to long pauses in price movement, then you're begging for a cowboy boot in the bucket.
Bottom line: don't go near it.
Oil Reserves Maxed Out
It doesn't matter anymore if you're an oil bull, or if everyone is reverting from nuclear power to more traditional forms of destroying the planet, or if Libya is winning over the Al Qaeda rebels, or if a general Middle East conflagration is at hand – oil inventories are full.
Full stop.
That means there's barely any room left at the Cushing, OK transit point, where the price of crude settles before moving from the Gulf coast north to consumers. The tanks at Cushing now hold a record 42 million barrels (capacity is 44), which means somebody is going to have to sell because the possibility of taking delivery will not exist at the next rollover.
Here is the price of oil for the last six months:
A double top has been set that may or may not be of long term significance, but in the short run, it will certainly matter. The shorts are well aware that those who normally take delivery of crude won't be able to at expiration. Add to this a general rise in crude stocks across America (up another three million barrels for the week ended March 25th) – the tenth time in eleven weeks – and you have the makings of a potentially short, sharp downdraft in the weeks ahead.
How to play it is a separate question.
The correlation that normally holds between oil and oil company shares has recently broken down. See here:
A breakdown in the correlation between the two is often an indication that oil company shareholders are looking ahead of the current spot price toward an imminent move in the underlying commodity.
If a crude selloff is in the works, PUTS on the XOMs of this world might be a wise move...
But betting against the oil services group might be a mistake. A recent surge in that sector could well continue if reports out of Saudi Arabia are true, viz., that the Kingdom requires a whole lot more capacity to buy its subjects' loyalty. Many happy returns,
Matt McAbby, Senior Analyst, Oakshire Financial
