When Little Birdies Grow into Monsters (SBGL,UNG)

There has been no better performer in the futures pits over the last year than platinum.  One year returns on the metal of 65.4% bested runner-up NASDAQ 100 E-Mini futures by better than 30%, and no one else even came close.

That said, the run in platinum has started to look stretched of late, and we believe the time is right to pair it against a commodity laggard.

On the platinum side, we’re looking at Sibanye-Stillwater Ltd. (NYSE:SBGL), the South African/American hybrid with a very strong roster of properties, primarily because she looks so overbought at the moment.

You listen very carefully….

SBGL has shifted its focus toward its platinum properties and will likely be looking for more acquisitions in that arena in the future.  The Stillwater and Lonmin purchases went a long way toward solidifying her as a market leader, but there are bigger plans in the works.

That’s for another day, though.  Today we’re focused on the latest ramp-up in share price, due solely to the underlying surge in the precious metals.

Take a look at her weekly chart for the last two years –

The chart says it best – price is up 400% since the summer of 2018 and 120% since September!

Great if you got in then, but today it’s looking too late for new longs.

Consider –

1. A weekly overbought read from the stock’s Relative Strength indicator (in green) is an outright nasty omen.
2. We note, too, that the last two weeks brought very little volume to the stock’s rise, and even if year-end trading is partly to blame, raw volumes are still too weak to justify the price spike.
3. Over the same eighteen month period, the price of platinum climbed 30%, while gold – another of SBGL’s mineables – climbed by almost 32%.

So where these guys come off with a 400% rise is a tad rich for our gullets – even if the company is the most leveraged operation vis-à-vis the price of gold (which they’re not), or possess the finest new property pipeline in the industry (which they don’t).

No, no, Tweety.  We’re not like that.  We’re into pairing…

How to Place a Stock’s Head in a Vice

Our take on SBGL is middling to bearish for the next ten to fifteen weeks.  As we stated above, the overbought weekly indication is as fair a sign as any that further gains will be all but impossible.

At the same time, we’re always happier finding a pairing against which to hedge our bet.

And this week she comes in the form of the worst performing asset of the year – Natural Gas.

WHAT!?

Oh, you might say that NatGas hasn’t bottomed yet.

That she’s riding her 52 week lows because there’s more weakness ahead.

That inventories are currently full, and demand continues to wane because of this latest warm spell.

But we don’t altogether agree.

• First up, price is running way below seasonal averages for this time of year, meaning any unexpected drop in temperatures could bring a sharp price rally (see chart, below),
• Prices for NYMEX gas are also oversold, in our estimation, making our suggested pairing an even more compelling one.
• Moreover, no one can tell the weather with any accuracy more than three days out.

Have a look here –

The spread from seasonal averages is overdone.  We like the prospects of a sudden surge.

And that’s why we’re offering this –

A Jew and His Gold recommends you consider the purchase of the UNG January 15^th 2021 20 CALL for $1.55 and concurrent sale of the SBGL January 15^th 2021 12.50 CALL for $1.65.  Total credit on the trade is $0.10.

And may the snow blow high!

Many happy returns,

Matt McAbby

Follow @HughLOHaynew