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Here Is How To Understand What WallStreetBets Really Did To Silver And The IShares Silver Trust ETF (NYSE: SLV) – Mike Swanson (02/02/2021)

We are in a fascinating moment in the markets in which the story of the WallStreetBets Reddit message board and their promotion of Gamestop (NYSE: GME) has captivated millions of people. It dominated the news cycle in the United States last week and over 2 1/2 million people joined the message board in less than a week. On my Facebook feed I saw at least three people where I live say they were going to buy the stock. On Sunday night Gamestop was the 15th most popular and widely owned stock on Robinhood. By the close yesterday it was number 8. This actually poses a risk for Robinhood as many of its customers use margin. That’s why they were forced to open a billion dollar plus credit line and restrict trading in it and several other risky stocks.

One thing the story shows is that there is a segment of the population that craves being a member of a herd. At the same time, Robinhood encourages herd like behavior by the simple way it is designed with its lists of stocks.

Last week on Friday morning I saw signs that WallStreetBets was going to move to telling people to buy silver and by Sunday night they drove their followers into a silver buying frenzy. Many people apparently bought in the belief that there is a giant short position in silver so it could be squeezed, I guess like Gamestop.

This isn’t really true.

In fact if you take a look at the silver future markets you see a bit of a different story. Take a look at this screenshot of Friday’s commitment of traders report for silver, which shows you exactly how various traders, big and small, are positioned in the silver market.

When it comes to the COT report, small speculators are small traders and large speculators are hedge funds and managed money. Both categories of traders are net long silver and do not have massive short positions in the metals.

So there is no silver short squeeze coming.

What about the commercial position?

Well, commercials are not traders. They tend to be the giant producers and shippers of silver who use the futures market to truly hedge their positions and lock in prices. They hold the metal. So you can’t squeeze them as they don’t really care what the price does after they hedge as all they care about is locking in a guaranteed price for physical silver they own or produce.

Nonetheless, WallStreetBets, and the story around them, helped cause the start of a buying frenzy in physical silver around the world on Sunday. I saw these tweets.

And on Monday morning silver prices gapped up over 8% on the open and the SLV silver ETF had its biggest one day of volume in over ten years, as it did over 250 million shares. Meanwhile, PSLV, which is the silver metals ETF I do have a position in did around 50 million shares.

So what is next?

I’m VERY skeptical of the idea that a massive silver short squeeze is coming, however I do think WallStreetBet is helping get a big silver rally going. I also think its silly to try to make trading decisions based on the chatter on a Reddit board.

The reality is silver made a bear market bottom in early 2016 and went into a stage one basing phase that ended last year when silver rallied past its 2019 and 2016 highs.

In a stage one base the only people who really buy and invest are those that are close to the sector and insiders while the masses ignore it.

The masses who do think about the market at all remember the bull market top that came before and the losses they or others they know then suffered. They find watching other markets going up more interesting. That’s what they like – things that go up huge, hence the people who bought Gamestop after it went up hundreds of dollars and is in the news.

So the masses ignored silver for years, more interested in things like Bitcoin or cannabis stocks.

At the start of a new bull market more people do buy, but the masses still tend to completely ignore what is happening even though prices are going higher as they have now become used to being indifferent.

The only thing that will wake them up is confirmation from some big source that it is real or a big story that makes them believe higher prices make sense following a big price move that fascinates them.

Once that happens the next phase of a bull market can kick in with the formation of a bull herd that grows over time. That tends to be the longest lasting phase and is fueled by more and more people buying into the market. Think of it as a rocket lifting off and flying to the atmosphere. The last phase is peak altitude were it can come right back down and crash or float in orbit for awhile before gravity takes over.

So, I believe right now that the WallStreetBets story and Monday price gain in silver represents this launch starting to happen. It is not so much that there is a silver squeeze coming in silver that is going to make it go up (there isn’t), but now the masses are beginning to believe again.

It just took a national news cycle around a message board to make it happen.

Think of silver as being where cannabis stocks were four or five years ago before they caught on. Amazingly, even with this buying on Monday none of the silver ETFs or silver stocks are in the Robinhood top 100 list yet.

As for what is next? Silver and most silver mining stocks had huge gap ups on Monday. For instance look at HL, which I have a position in.

When something gaps up like this and creates this type of chart it typically goes sideways for a few weeks before going higher. That is the most likely scenario. My new top stock pick for February closed on 8 cents resistance and on the market close there were only 300,000 shares left on the ask. So it looks like it is ready to breakout soon, with a key silver property.

So if you are invested in silver and silver mining stocks like I am then I think we can both thank WallStreetBets and this Roaring Kitty character for helping to create the start of a new bull herd in the silver market. It took five years to appear, but here it is. This is what they really did to silver.

As for short-term, look for some sideways price consolidation to play out here after Monday’s move.

-Mike