…..if you don’t know what you are doing.
Below is a list of lithium stocks currently being shopped around by various local brokers along with their price targets and the difference between the reality of the market’s price and the broker’s guess.
It is at this point that I should make a comment about brokers’ price estimates – they are guesses nothing more. Anyone who thinks they are grounded in any form of reality is profoundly naïve. Your guess as to what a stock might be worth in the future is just as valid as any broker which is to say it is fundamentally worthless just like any brokers.
The chart below shows the relative YTD performance of these stocks – as you can see the performance has been quite poor. The reason for this is quite simple – the lithium boom of 2020/21 is over. I have spoken before about trying to chase legacy trends and the fact that once these trends are over, they are over and you have to wait until the next wave before entering. Doing show pre-emptively at best leads to stagnant capital at worst a series of losses that could be avoided.
This raises the question of when to buy lithium stocks and the answer to that is simple – when the price of lithium goes up. Resource stocks are demand sensitive – if there is no demand then there is no reason for them to go up and the only reason, they go up is when the underlying commodity goes up. It is quite a simple equation.
Unfortunately for traders, lithium itself is not directly tradeable but this does not mean that the price cannot be tracked – several sites offer a basic chart of lithium prices and this can be used as a guide. The chart below is quite useful in that it demonstrates the major trends.
If you require more information you can use a proxy such as the ETF LIT tracks the price of lithium reasonably well.
Trading any form of instrument comes down to a very simple basic rule. You buy things that other people want, I understand the narcissistic mechanism that drives people to believe that they have discovered something that no one has discovered (also common in conspiracy theorists) but trading is about riding broad swings in market sentiment. I also understand that people want the implied certainty that a price target brings but at the end of the day the market doesn’t care.