Ranking Silver Stocks
Three months ago at the beginning of October The Silver Analyst had a look at 60 silver or silver related stocks and ranked them according to the most important feature investors want in a silver mining stock. That feature is leverage. If silver is powering ahead as we expect it to do increasingly in the months ahead then we want stocks which power ahead even more than silver.
To that end a table was produced which ranked each stock not just by absolute gain but by how much it was delivering leverage on the price of silver. That study was conducted for prices from the major intraday lows on August 16th 2007 to the intraday highs near to October 2nd 2007. I won't reproduce the whole table but will show you who the top ten performing stocks over that time period were.
The stock followed by its low and high prices is displayed followed by the percentage gain and then the leverage. For example, Orko Silver came top with a gain of 117% but it also performed almost six times better than silver over that time period! Note that silver in that period put in a gain of about 20%. Clearly holders of Orko fared a lot better than holders of silver bullion and ETFs but remember this is only over a two month period. Perhaps your favourite stock can be found in this top ten.
Now since then I have updated this table and added ten extra silver stocks to the roster. Retrofitting those ten new stocks caused one to find its way into this top ten and one not far behind in 13th spot. However, recalculating the table for the period August 16th 2007 to January 4th 2008 changed the complexion of the table to the extent that the former table was not as useful. In fact, of these ten stocks from October, only four have managed to stay in the top ten with one or two plummeting down the list! This table is available to subscribers and is updated on a monthly basis.
Clearly the silver stock picking game has its volatility and surprises. But the game is afoot as silver approaches the highs it made in November ready for a new lift off. The SLI indicator which we use to time major exit points is at a critical juncture as it approaches its 4 year rising trendline. I expect once it bounces off this line that silver will begin to outperform gold more and more. Gold leads at the beginning of a bull run but silver leads at the end.
To remind readers, the SLI works on the theory that silver can only outperform (or leverage) gold by about 1.8 to 1 before being pulled back. This is a sell indicator that has only triggered THREE times in the last forty years. The chart below shows the last sell trigger in 1998 when Warren Buffet bought his 130 million ounces of silver. The 23 year silver bear market then resumed to an SLI bottom of 0.60. Since then the SLI has been rising punctuated by our two major silver corrections in 2005 and 2007.
The question is whether or not the SLI will hit 1.80 again on this final silver surge and trigger a major multiyear sell on silver? The honest answer is I don't know since I don't know the future and we should not turn any technical indicator into a god we hang our entire fortunes upon. But if this SLI goes above 1.80 then for me at least this 5 year silver bull market will be making a major top. Note from the graph that the SLI is currently at 1.30. Also note that during the 2004 price spike, the SLI advanced 0.50 from 0.60 to 1.10 and again during the 2006 spike it went from 1.00 to 1.50 for another 0.50 advance.
My expectation is that 1.30 will advance 0.50 again to 1.80 for a blow off sell which can also be shorted with put calls for extra profits. It looks like the next few months will be mighty interesting for silver and don't forget this will be a major sell signal for gold as well.
Further comments can be had by going to my silver blog at http://silveranalyst.blogspot.com where readers can obtain a free issue of The Silver Analyst and learn about subscription details. Comments and questions are also invited via email to firstname.lastname@example.org.