The Overnight Report: Hi Ho

This story features GME RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: GME

By Greg Peel

Whiplashed

On Friday the ASX200 rallied 60 points before closing down -40 and yesterday the index fell -90 points before closing up 55. Never mind any fundamentals. The Dow futures were down -300 points yesterday morning before turning to be up 100 by the ASX close of trade.

The Dow futures are not trading on fundamentals either.

The reason for the Dow futures’ rebound appears to be a waning of the short squeeze in certain US stocks as the Reddit crowd move on to a new target – silver. On Friday night the spot silver price rose an unusual 5% — unusual particularly given gold didn’t move. Why silver might be another target is anyone’s guess.

More on that below.

Yet local nickel junior GME Resources ((GME)) was still being bought up yesterday (22%), because its code is the same as GameStop’s, while the likes of Silver Mines ((SVL)) and Investigator Resources ((IVR)), both silver juniors, saw near 50% jumps.

The best performer in the index yesterday was Blackmores ((BKL)), up 8.9%, with the only explanation offered is its short position. At 4% shorted, Blackmores sits way down the list of local stocks that could be hit with a short squeeze. Mesoblast ((MSB)) took the silver with a 5.9% gain – it’s 10.3% shorted, while Zip Co ((Z1P)) came in third with 5.2%, it is 5.7% shorted.

Consistency is lacking. Service Stream ((SSM)) fell -4.7% yesterday and it’s 7.3% shorted. Meosblast and Zip display such volatility on most days.

Outside the recreation centre, market gains were led once again by healthcare (+1.7%). A tick up in the iron ore price had materials up 1.3%. The banks saw a turnaround in rising 0.9%.

Energy stocks were sold down early but bought back hard to a flat close for the sector, but service provider Worley ((WOR)) could not escape a -10.9% decline after issuing a profit warning.

Economic news yesterday underscored the new, government-driven Australian housing bubble. House prices are on the run again, thanks to historically low mortgage rates, and housing finance rose 8.6% in December, concentrated in new homes being built for owner-occupiers taking advantage of government subsidies.

In other news, job ads were up in January for the eight consecutive month, to their highest level since early 2019.

The Wall Street yo-yo continues, with the Dow up again overnight to the tune of 200 points. Our futures are up 52, so another solid day unless the Dow futures turn tail again.

Curious

One can understand the young social media crowd turning vigilante on hedge funds betting on the ultimate failure of a game store chain, or a currently closed down cinema chain, or old world names like Blackberry, Nokia and Kodak. But silver?

There is only a specific number of shares in GameStop. We don’t know how much silver there may be. Moreover, while speculators certainly play in commodities markets, so do miners hedging production. So shorts in silver are not necessarily a bet on the price going down.

What’s more, data suggest that short positions in silver are currently on the low side in historical terms.

The Reddit crowd have targeted a silver ETF listed on the stock exchange. The sponsor of that EFT has to buy in silver to cover those positions, so a rally in the ETF forces a rally in both silver futures and the physical metal. Spot silver rose 5.8% last night.

The Reddit crowd were incensed when retail brokers were forced to limit trading in targeted stocks, making accusations of rigging and looking after the big guys at the expense of the small. The reality is a collapse in any one retail broker due to lack of capital could have set off a market-wide chain reaction.

It is common, nevertheless, for the regulator to increase margin requirements on futures contracts at times of extreme volatility, making trading more expensive. Silver has seen such increases in the past. Is the mob trying to force the regulator’s hand just to add fuel to the argument?

The Reddit crowd might do well to google Bunker Hunt.

Away from the recreation centre, investors piled back into the FANGs and others last night that had been the prime targets of selling to cover the short squeeze. The Nasdaq rose 2.6% to the Dow’s 0.8%. It was the second rebound, following the second fall, in this current mayhem.

Will we see round three?

Meanwhile, the Republicans have countered Biden’s US$1.9trn stimulus plan with an offer of US$600bn. I think I’ve seen this movie before.

Commodities

Amidst all the stock market turmoil, the US bond market and the gold market have not responded. If investors really did think there was market risk, they’d be buying bonds. The US ten-year yield has moved little this past week, currently at around 1.07%.

The gold price has not followed the silver price. The two are not one hundred percent correlated, but they usually move together.

Silver looks a bit lonely on the table above.

Oil prices have nevertheless sparked up, on reported supply weakness.

The US dollar index is up 0.5% but the Aussie is unmoved at US$0.7625. Strange days.

Today

The SPI Overnight closed up 52 points or 0.8%.

The RBA meets today.

The eurozone reports December quarter GDP tonight.

Credit Corp ((CCP)) and Centuria Industrial REIT ((CIP)) report earnings.

The Australian share market over the past thirty days…

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