'The largest one-day fall we've ever seen'...
'The largest one-day fall we've ever seen'... Still too soon to buy Greece... This hated asset could soar...
In yesterday's Digest, we shared our latest thoughts on the ongoing Greek crisis. Today, we're checking in on Greek stocks in particular...
Our colleague Steve Sjuggerud has been following Greek stocks since the crisis began. As longtime readers know, Steve has built his career on successfully investing in cheap and hated assets... So he has been watching closely for a similar opportunity in Greece.
But so far, it hasn't appeared. Greek stocks are getting cheap, but they're anything but hated. As Steve told us in the June 15 Digest...
Greek stocks have crashed – down more than 50% in the past year. After a fall like that, you might think that I'd be getting interested. I'm not.
In short, investors are way too excited about buying Greek stocks. I will buy when Greek stocks are hated and out of the headlines. We're not there yet.
Last week, Greece closed its stock markets and shut down its banks, so stocks there have not been trading. But the major Greek exchange-traded fund (ETF) here in the U.S. – the Global X FTSE Greece 20 Fund (GREK) – has... and last week, shares of GREK plunged nearly 20% in a single day.
Steve shared his latest thoughts on the situation with True Wealth Systems subscribers in last week's Review of Market Extremes...
On Monday, GREK fell 19%. While this isn't a perfect representation of the Greek market, it's darn close.
And that 19% fall is larger than any one-day fall we've ever seen in the 28-year history of Greece's benchmark index – the Athens Stock Exchange (ASE) Index.
In fact, the ASE Index has fallen 10%-plus in a single day only five other times in history. The largest drop occurred in December 1987... with a one-day fall of 15%.
While some investors may be tempted to buy after such a large one-day crash, Steve's research shows that's a "risky move, at best"...
Over all of these time frames – from one month to one year – our median returns are negative for Greek stocks. Any way you cut it, buying after Monday's fall is risky... and likely a losing proposition.
Of course, we don't know how Greece's bailout and economic crisis will end. But Monday's 19% crash in GREK is the largest one-day fall in Greek stocks we've ever seen. And history says buying because of it is a bad idea.
Watching the carnage from the sidelines is the best option right now.
Steve still isn't bullish on Greek stocks, but he is getting bullish on another hated asset...
If you've been with us for long, you know we think everyone should own some real, hold-in-your-hand gold. But we also recommend owning gold's cheaper cousin, silver.
We consider physical gold and silver bullion to be forms of "real money"... and a type of financial disaster "insurance" you put away some place safe and hope you never need. We consider these holdings to be savings, and we certainly don't trade in and out of these positions.
But assuming you have those bases covered and have funds to speculate, history says a fantastic trading opportunity in silver is coming...
Silver has had a wild first half of the year... It rose nearly 20% in January before coming all the way back down to flat on the year by March. It rose another 14% from April to May before pulling back and hitting new lows today.
But Steve believes silver has significant upside from here, thanks to an extreme in the U.S. Commodity Futures Trading Commission's (CTFC) weekly Commitment of Traders (
For those who aren't familiar, the CTFC releases COT reports for most commodities and currencies, making it a good way to show how futures traders are "betting" in the market. And as Steve explained, last week the report showed an unusual extreme...
Today's extreme comes from the total number of open futures contracts in the silver market... the so-called open interest. Last week, open interest hit its highest level in history. This extreme alone doesn't make silver a buy. But what happens next could give us an opportunity...
Over the past 15 years, silver has tended to soar when open interest hits a high and then falls. Specifically, silver has moved higher when open interest has hit a six-month high and then fallen by 15%. Buying after that has led to hefty returns. This extreme led to 18 buy signals over the past 15 years. Silver soared 15.2%, on average, over the next three months... and nearly 40% over the next year.
Steve noted that open interest is still hitting all-time highs, so it's not yet time to buy... But he expects the opportunity could be just around the corner...
Open interest needs to fall 15% before this buy signal triggers.
This extreme could give us an opportunity soon. We'll be watching it closely in the coming weeks.
New 52-week highs (as of 7/6/15): short position in Viacom (VIAB), Valero Energy (
Another question about discount brokers in today's mailbag. Keep the questions coming to feedback@stansberryresearch.com.
"In a recent article you mentioned several discount brokers, but not T.D. Ameritrade for low fee trading. Any reason why?" – Paid-up subscriber Bob Staley
Brill comment: We didn't exclude any brokerage intentionally. T.D. Ameritrade is another good discount brokerage option for individual investors looking to place their own trades. Barron's put together a good comparison among 18 different discount online brokers. You can read it here.
Regards,
Justin Brill
Baltimore, Maryland
July 7, 2015
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