Basic Investing in Resource Stocks or Why Palladium is about to Fall Off a Cliff
Several of my so-called friends have been nagging me for years to write something about the basics of investing in resource stocks. I was quite comfortable with whining about how it was a work in progress and I was thinking about it and someday I intended to actually put pen to paper but they wouldn’t let up. So in the end, I caved and submitted to their browbeating and harassment though not gracefully.
(Click on images to enlarge)
It took sixteen days to write and a month more to get the size of the book correct and have a nice cover done up. Well, no matter how much I winged and whined, I did manage to release it on the 14th and now you can buy it from Amazon.com here or Amazon.ca here or Amazon.com.au here.
I use the Daily Sentiment Indicator a lot to give me trading signals. When I downloaded the DSI for yesterday the 19th, it showed a value of 97 for palladium. Since that is a nosebleed reading it seemed to me that I could use palladium as a training tool. I used a chart of silver from 2011 showing the DSI readings and the top on the 25th of April in the book.
I have drawn a line in the chart for the DSI at 10 and at 90. Those are pure measures of how negative or positive investors are on a commodity. The lower the number, the more negative investors are betting. The higher the number, the more positive investors want to wager. You rarely get readings in the below 10 or above 90 areas for any commodities so they are important. But there is no ironclad formula for what reading would make a top or a bottom. You might have a top at 80 or a low at 20 but basically the more extreme the number, the more important the high or low.
Palladium first touched 96 on the 17th of January of this year. That’s a pretty extreme measure and often marks a major top. But if you look at the chart of silver for 2011, silver actually hit 96 around the 23rd of February. The actual high reading for silver was at 97 seven weeks later starting on April 15th and staying at 97 for five days. Meanwhile silver went from about $33 an ounce in February to about $42.50 in mid April before topping at $49.80 on the 25th of the month. So the DSI can in fact say a top is at hand and the commodity still move up 15-20% in the last dying gasp before plunging.
I can say with great confidence that palladium is going to plunge. We are showing a DSI that says a top is near. Of course it might be $200 higher when it goes over the cliff depending on how stupid investors want to get.
I get pretty negative in the book about the state of the world. In France tens of thousands of the Yellow Vests have held countrywide protests for the 15th week in a row with barely a mention from the lame stream media. In Madrid many thousands marched protesting the trial of separatists on the Catalan independence vote. In late December even Canada held protests over the carbon tax issue. I thought the only time Canadians protested was after a game lost by a popular ice hockey team.
In Haiti anti-government protests have turned violent with seven dead so far. Even in Belgium, home to the EU administration, protestors took to the streets to complain about climate change. In Israel protestors are objecting to police brutality.
What few understand is that all of these worldwide protests have something in common. Vast segments of all societies feel that their governments no longer represent their interests. While the 1% take a larger and larger share of the pie leaving less and less on the plate for the rest of us.
The basic theory in physics about entropy holds that over time, everything becomes more chaotic. Since the world left the gold standard, all governments have spent money they didn’t have and made commitments they can’t complete in order to get the mob to vote for them. Meanwhile the middle class is being destroyed as the 99% see their taxes increase just as their salaries decline. It will end poorly.
There will be things I write about in the book that you won’t want to hear. But you need to. Time is the enemy and all things get worse. A former assistant director of the FBI admits on national television that he and the Department of Justice participated in an attempted coup against the legally elected president of the United States. And the nation yawns.
It’s end of empire and it will get worse. Be prepared. Be very very prepared.