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Redditors set their eyes on silver but is the shine gone?

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Last week we saw a significant display of herd mentality, as masses of retail investors pushed up the price of the US stock, GameStop. This week retail investors turned their attention to silver, attempting to push this commodity to unprecedented highs.

Last weekend, there were many posts and videos on social media and chat platforms encouraging people to buy up big on silver and silver stocks, as they were alleging that silver was the next short squeeze for hedge funds. On Monday, silver rose due to demand, as retail traders rushed to grab a bargain like shoppers outside Myer during Boxing Day sales. However, silver quickly retreated to trade lower than it opened on Monday and, as of writing, silver is still trading at these levels. Therefore, retail investors are most likely holding on to losses and wondering what occurred.

Many Australians, trying to get in hoping to make it big, were blindly buying silver stocks unaware of the risks they were taking. If we consider Australian silver miners, outside of S32 the majority are very small. For example, Golden Deep (GED), one of the biggest movers in this latest dash for cash by retail traders only trades 120 million shares at around $0.01, meaning $1.2 million dollars of stock was traded on Monday. However, on a normal trading day, typically one to two million shares, equivalent to $10,000 to $20,000 dollars, turns over on GED.

gamestop silver shares short squeeze

While I appreciate the desire to make money, there are always those who like to chase rainbows hoping to find that elusive pot of gold, which is why lotteries are so popular. However, unlike the lottery where you only pay a few dollars for a ticket, those who chase rainbows in the stock market typically lose thousands of dollars and sometimes much more. Reading chat forums or watching YouTube videos hoping to find the next big winner is a pursuit that generally results in the opposite occurring and rather being a master of the market, many become a statistic.

When it comes to the stock market, the rules do not change and those who choose to ignore them do so at their own peril. My advice is do not invest in something you do not know or understand, always do your research so you know why you are buying and always ensure you have an exit strategy. Finally, yet just as importantly, avoid following the herd at all costs.

Best and worst performing sectors this week

The Financial Services sector rose strongly, rising more than 3%, as did Information Technology while Communication Services was not far behind. The worst performing sectors include Utilities down around 1% followed by Consumer Staples, which is just in the Green and Industrials up over 1% so far this week.

The best performers in the ASX/S&P top 100 stocks include Tabcorp Holdings up more than 12%, Boral up more than 11% followed by Carsales.com, The Star Entertainment Group and Afterpay, which are all up more than 8%. The worst performers include Worley down more than 10% followed by Northern Star Resources down more than 5% and Saracen Minerals down more than 3%.

What's next for the Australian share market

What an interesting week it's been for the Australian stock market. After falling away on Monday, as I expected, it rose strongly over the next two days before showing weakness again on Thursday. Previously, I indicated that the market would peak and start to fall away for a short period, which is what occurred. While this week would technically be considered a down week on our market, the move down really occurred over four trading days in the last two weeks.

So can we expect further falls or is the down move over? It is possible we will see more downside but this cannot be confirmed just yet and I expect one of two possibilities to unfold. The first is that the market will rise next week and continue up for the next couple of months, making a new all-time high before moving into the next yearly low.

The other possibility is that it will continue to fall for one or two more weeks with the market travelling down to between 6500 points and100 points before it rises again. Either way, I expect our market to trade higher over the next couple of months. For now, I encourage everyone to be patient while we wait for the market to confirm a direction.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.
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