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Thursday, April 27, 2017
Precious metals are booming again this year.
Gold is up double digits, and silver is up almost 15%. But the rally in silver is getting ahead of itself.
Futures traders are all over it... They're making extreme bullish bets on higher silver prices. And history says that's a contrarian indicator. Lower silver prices are likely, starting now.
Here are the details...
Silver is up big this year... But it's not a smart bet today. The market quickly hit frothy levels.
You see, futures bets on higher silver prices are at an all-time high based on the Commitment of Traders ("COT") report. This is a warning sign... Precious metals investors need to pay attention.
The COT report is a fantastic contrarian indicator. It tells us exactly what futures traders are doing with their money. And at extremes like we're seeing today, the smart move is to take the opposite side of the trade.
Simply put, traders tend to be wrong at the extremes and right in between. That's because when futures traders are all making the same bet, it signals a crowded trade... And the opposite usually occurs.
Today, futures traders are all betting on higher silver prices. Take a look...
The last time futures traders were this bullish on silver was August 2016. The metal fell 24% over the next four months. Take a look...
Surprisingly, that's the ONLY other time in history that futures traders have been this bullish on silver. And while I'm not calling for a 20% fall in silver prices, a double-digit decline wouldn't be surprising.
Again, futures bets on higher silver prices are at an all-time high. I'd be interested in silver if that script was flipped and futures traders were bearish on silver.
But the contrarian bet today is on a lower silver price.
Importantly, I don't recommend you short silver. It's hard to get these sentiment trades exactly right. But based on this extreme, a sharp pullback in silver is likely in the short term.
If you've profited from the precious metals boom so far in 2017, today is likely a good time to take profits.
Brett has one message for junk-bond investors today: "Get out." The high-yield bond market is at dangerous levels... And history says this setup could lead to double-digit losses. Learn more here: A Crash Is Coming in High-Yield Bonds.
"It's rare to see an asset trading for the same price it was 20 years ago," Brett writes. But in one country's stock market, that's exactly what's happening today. This incredibly rare extreme means we could see more gains ahead... But this situation won't last long. Read more here.
IT MAY BE BORING, BUT IT WORKS
Today, we're beating the drum once again on one of our favorite investing strategies...
Longtime DailyWealth readers know that the simplest businesses – like waste disposal and tools – often reward shareholders the best. Contrary to popular belief, you don't need to make risky bets to make a lot of money in the stock market.
For proof, we look at $117 billion manufacturing conglomerate 3M (MMM). The company makes "boring" household products like ACE bandages, Post-it notes, and Scotch tape. 3M has grown its bottom line consistently over the last several years and has passed that growth along to shareholders, raising its dividend for 58 consecutive years. Still, 3M isn't the type of stock you'll hear about much from Wall Street analysts or your next-door neighbor.
But that's OK with us... As you can see from the following chart, 3M shares just broke out to a fresh multiyear high. They're up nearly 120% over the last five years alone. Investing in boring household items may not be exciting, but it works...