The Invisible Hand

Guest Post by GM JenkinS

A lot of explanations out there about the shitty performance of the mining stocks since the silver price explosion of last September (or even earlier). There's Dan Norcini's idea that hedge funds are going long metal and short stocks. Another idea is that ETF's (including leveraged ETFs) have siphoned away interest from mining stocks. Other reasons relate to the fundamentals of the companies and things like hedging and dilutions. And all those explanations were satisfying enough ... until Monday, April 11.

Let's go back to Friday, April 8. That day, many major mining stocks made all-time highs, and the sector looked to have finally recovered from its doldrums. Here come the momentum traders, right?

Wrong. The following Monday, the price of silver fell around $0.75, but quickly recovered, finishing the week $3 higher.

Since that Monday, however, mining stocks have disconnected from the price of silver. Looks to me like the prices of mining stocks were capped. Caveat emptor.


Louis Cypher said...
This comment has been removed by the author.
Louis Cypher said...

I was trying to reply earlier on my iFad but it was a complete pain in the ass to type on. Maybe it just takes getting used but I gave up.

Anyway here is the gist of what I was trying to say;
I think it's a number of things.

I don't know if Dan has done max pain study on the miners and compared it to the general markets. Doing that may at least form a solid basis for his theory.

Really good site for quick look ups here;

I have studied the movements of shorts on miners I have owned and the shorts do like to pile in on select companies and beat the hell out of them.
Just from personal experience it takes well publicized positive news for them to find another victim. HL is a good example.

It's a safe assumption the PPT are only buying the s&p stuff so the momentum day traders just hitch a ride and ignore the miners.

Any non bug looking at the stocks would just shake their heads at the crazy volatility. Just look at GSS or HL for example.
Small stocks but huge price swings. The powerhouses like Barrick just siting there. No real movement.

Retail are just scared away is my guess. The weekly top calling in Silver and Gold would make any sane person question whether buying a miner is a good idea.

I question every mining stock purchase as they go down an awful lot quicker than they go up.

Louis Cypher said...

With the miners I like the lottery tickets. I take plenty of time to study their price movements and volume. Spend a lot of time reading up on them. I would rather miss a quick run than buy into something that is going to get smashed down in a day. When they do run I will generally let them run until I can at least get 50% or 100$ of my original investment out. Sometimes that means sitting on them for 6 months or more.
Got plenty of losers I have had to cut and plenty of winners I have cut too soon.
If they lose control of Silver here and now again I think we will see the HUI run. Maybe wishful thinking on my part :)

GM Jenkins said...

Good points - I agree with all you say. But I feel like investors in miner stocks have become slowly-boiled frogs, in some sense, so accustomed to underperformance that they havent become duly suspocious since April 8 when remarkably, the miners have lost even their correlation to silver, while being tightly correlated with each other. The actual numerical correlation (if anyone wants to calculate it) will probably still be fairly high i bet, because a few big days moving in the same direction should drag up the coefficient … but if you just look at whether miners and silver have moved in the same direction, especially on the 10 days silver has moved up, you get 4 up days, 5 down days, and one flat day. In other words, knowing which direction silver moved tells you nothing about which direction the miners moved. When has that ever happened before over such a sustained period for the sector as a whole. In Feb/Mar 2009 you had a similar disconnect, but then all equities were selling off, so it wasn't notable that silver's moving up had no predictive value on the moners' direction. But now, with silver and gold at all time highs, with the price of silver able to withstand a theoretical 33% correction from its recent high and still be $5 higher than early Nov 2010 when most miners made their all-time highs many of which still haven't been broken -- this is passing strange i say and suggests foul play, vs some uncoordinated emergent phenomenon of hedge fund strategies or whatever

Heron said...

In light of recent events, it looks like April 11th was the day that plans for the May bombing of silver were released to key members of the banking elite. They then had plenty of time to front run the smash by selling their mining shares, particularly SLW.

Heron said...

By the way, I appreciate your blog very much. Although much has been said about the under performance of the mining shares, your chart work here shows that something happened in the minds of some large share owners on a certain day. Nice.

Louis Cypher said...

We might be seeing some sentiment shift here. Only a blind man could look at Silver right now and say; "Meh! it's perfectly normal". Even a blind man could see the current beat down is over done.
CNBC etc crowing about the beat down just puts it on everyone's radar IMO. In other words talking about it is going to backfire. Silver is now considered cheap.
Those that were waiting have got be nibbling at this point. The recent sell off and loss of NAV in PSLV only makes it juicier once the whole story came out that Sprott didn't sell everything. Just a fraction of his holdings and only to recycle those dollars into the miners.

Heron said...

Yes, so far, so good.

And today updated an previous report that "an SLV put buyer bought roughly $1 million in SLV $25 July puts" scoring a massive return on a trade which was originally placed on April 11.