Tag Archive for: SLV

Silver — on its way to $20

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Price pattern today almost a perfect image of 1980

The chart below overlays the Silver today with the Silver price in 1980. The time framing and price scales are not identifical. It is the price pattern itself that is important.

Based on the price pattern, Silver today is following the script of 1980 with uncanny accuracy. And, based on the similarily of the patterns, Silver is headed to $20 to $25, probably by the end of the year.

Yet, a survey released Monday by Bloomberg indicated that the median expectation of 100 commodity analysts is for Silver to rally back to $49.79 by December 31.

I will trust history rather than the commodity analysts.

Markets: $SIL, $SI_F, $SLV

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Some charts I am looking at now – June 16

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There are a few charts that really have my attention right now — although that does not necessarily mean I have a position or will enter a position in these markets. It does mean that I have a position or am looking at strategies to establish a position in these markets.

First, Crude Oil. I have commented several times in recent weeks via this blog or on Chart.ly on the recent consolidation zone. It now appears as though a descending triangle is being completed. Look for confirmation, but be aware that a bear trap could also occur. This is one of those patterns that could provide a head fake to the downside but provide big profits on the upside. But for now, I am short in my proprietary account with relatively tight stops.

Next, I will focus on one of the best potential chart set ups I have seen in a year or so — Natural Gas. The January 2012 contract displays a classic H&S bottom on both the daily and weekly charts. A major bottom is being constructed in this market. I am sure I will comment many times on this pattern and the trading implications in futures and ETFs. [Note: Dan Chesler, an excellent energy market analyst, brought this chart to my attention. Dan’s web site is www.chesler.us]

Next, Copper. I have been bearish on this chart for weeks, but the market is making it hard for position traders who sell weakness. Yet, the market is rolling over. What appeared to be a bear flag has now turned into an awkward 5-week continuation H&S pattern. If the trend has really turned down prices could easily drop $1 per pound in two months.

Next, Soybean Oil. I have had an upward bias in this market based on a possible continuation inverted H&S pattern. However, a sharp drop would complete a H&S failure sell signal. Also, the closing price chart (and I am paying more attention to closing price charts because of increased market “noise”) has completed a symmetrical triangle top. I am presently short Bean Oil, but I will remain flexible.

Next, July Chicago Wheat. If there ever was a H&S top pattern for the books, this is it. The problem is that H&S tops are supposed to occur after a large move up (i.e., tops are supposed to reverse a previous trend). This pattern does not qualify for this criteria in that the pattern itself WAS the move up. Nevertheless, this is a facinating chart worthy of following. I may or may not go short Wheat.

Next, July Silver. This market is in a major bear trend. The daily chart completed a H&S failure pattern on June 13 when the June 3 low was penetrated. I want to make a MAJOR point here, folks. I trade based on set-ups, knowing that 60% of my set-ups will fail over an extended period of time (over shorter time frames in the past, up to 80% of my signals have failed to produce profitable trades). I comment on set-ups, not on market opinions.

Finally, DYY (the ultra long commodity ETF). I am engaged in a short-selling campaign in this ETF. See previous posts here and here. I will pursue the strategy I have already disclosed. I am short two layers of DYY and will short a third layer if the H&S top is completed.

That’s all for now, folks.

Symbols related to this post: $ZW_F $DYY $NG_F $ZL_F $SI_F $SLV $CL_F $DJP $SIVR $GAZ $DBA $UNG

Disclaimer: I am a pure chartist. I do not trade based on fundamental or macro-economic factors.

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Copper bear market continues to unfold

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Silver is also setting up for a sell signal.

I last commented on Copper in a June 1 post titled, “Major chart top in Copper – Target is 360.” The bear flag identified in that post appears poised for completion. A move and close below the June 2 low of 403.25 (July contract) would put the finishing touches on the red metal. The chart below is a closing price chart — the close-only flag would be completed today by a close below 408. Such a close would have initial targets of the May 12 low at 385.35 and the November low at 360 to 365. The diamond top projects to 363.

In my opinion, if Copper has really rolled over (if the bull trend from the December 2008 low has run its course), the most likely target for a bear thrust on the weekly chart is the 2010 low at around 276. The bull trendline on the weekly log chart has been penetrated. Keep in mind that the violation of a trendline is not a signal in my trading, but simply indicates a change in a market’s behavior.

Selling Copper on weakness has not been a profitable manuever. If the flag is confirmed, Copper should be shorted on 700 to 800 point rallies.

A postnote on Silver. This market is setup to signal a H&S failure. I will short Silver if the June 3 low at 3506 is penetrated, risking about 50 basis points.

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Silver: Going According to the Script – DOWN!

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The markets  whip me around often enough that I will take credit when I make a correct call…and my next call for Silver is DOWN.

Every once in a while a trader gets “in-step” with a market. And when that happens, a trader needs to ride that horse until the first time the horse bucks the trader off. At that point the trader needs to dust him or herself off and find a new horse.

On April 24, I posted the blog, “How do you spell bubble?…SILVER!” A chart included in the posting is shown below. In the posting I stated that the market was within weeks or even days of a major top. In fact, the high had already been made on April 25. On April 28 the market tested the high and the subsequent decline was historic.

On May 1, I posted the blog, “8 years of global Silver supply changed hands last week.” My conclusion was that a major distribution of ownership had occurred from the strong hands to the week hands. The chart I included in the post is shown below. The next day, May 2, Silver droped $5.65 per ounce at its low.

On May 10, I posted the blog, “Silver – What’s next short-term?” The chart from the post is shown below. My conclusion was that Silver would drop to new lows for the decline, then rally into the low 40s, then drop sharply.

I was correct on projecting new lows for the decline, but I think I was wrong on forcasting the rally into the low 40s. Earlier this week I posed the possibility of a 4-week H&S bottom with an extended right shoulder. While this is still a possibility, my preferred interpretation is that a H&S failure will occur. Extended right shoulders should generally cast doubt upon a H&S interpretation.

A H&S bottom failure occurs when:

  1. The pattern is briefly completed, but the advance immediately terminates and the trend preceeding the H&S bottom returns, or,
  2. A right shoulder rally falters short of the neckline and prices fall below the existing right shoulder low, completing the H&S failure pattern. [Note: I consider the H&S failure to be a pattern unto itself.]

The current chart of July Silver is shown, highlighting an idealized H&S failure.

I want to conclude with  two points. First, neither the H&S bottom nor the H&S bottom failure have been completed. This market remains anyone’s guess. Charts are constantly evolving with one pattern morphing into the next, into the next, into the next, and on and on it goes. The real value (arguably, the only value) of charts is they provide traders with trigger points containing favorable risk/reward relationships.

Second, I am flat but would go long if the H&S bottom is completed or short if the H&S bottom failure is completed. Either event would be a tradeable signal for me. My bias is that the H&S failure will occur. The H&S failure formation would have a pattern target of 28.52 and a swing target of 21.58.

If the market continues to drift sideways in a choppy manner and then completes the H&S bottom, the chances are great that the H&S bottom completion will be a giant bull trap.

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Another strike against intraday stops

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It’s the line that counts.

Every thing else is noise and clatter intended to confuse and separate traders from their money. Where a market closes is all that matters.

My final thought for the weekend.

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Flags flying at half-mast – a sign of death!

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 Risk On – Numerous charts show signs of a pending decline 

In the markets, as in real life, flags flying at half mast symbolize death. A number of half-mast flags and pennants in the raw material markets indicate that the steep decline in early May was just Act 1 in a two-act play. The flags are symbolic of the intermission between the Act 1 (the first decline) and Act 2 (the next phase of the bear trend). 

Bear flags or pennants are present in the following markets: 

  • Crude Oil
  • Heating Oil
  • Gold
  • Sugar
  • Soybean Oil 

Crude Oil and Heating Oil display classic pennants. Rallies toward the May 11 high (while not necessary) would be an excellent shorting opportunity. The target of the pennant is Crude Oil is 84.80.  

The target in Heating Oil is 2.5060.

The Gold displays chart construction similar to the energy products with two exceptions. First, there is potentially enormous support under the Gold market in the form of a previously completed 4-month continuation inverted H&S pattern. However, old support sometimes has a way of disappearing. Second, the huge volume on May 5 could indicate accumulation buying by strong hands. However, if the energy pennants lead to a strong decline it will be difficult for Gold to hold up in a Risk On/Risk Off market environment. 

Sugar also displays a classic bear pennant. This market is in a well-established bear trend and has been since early February. Notice that the pennant in the October contract is forming just below the neckline of a 5-month H&S top. The target in October Sugar is 17.83. 

If my analysis is correct in Soybean Oil, the current pause in the form of a flag should be the last support before a sustained markdown in price. Once this flag gives way, prices should trend to 45.60. (Caveat: The pattern in Bean Oil could prove to be an extremely bullish continuation H&S pattern. Traders need to be flexible on this one.) 

Additionally, a number of other markets present technically bearish potential. These markets include:

  • Russell 2000
  • S&P 500
  • Silver
  • Corn
  • Soybean Meal

The Russell 2000 is hovering right at the major 8+ month trendline. A violation of this trendline would indicate that the bull trend since March 2009 is seriously aging. The initial target would be 770 as part of the transition from bull market to bear market. 

 

A confluence of technical developments can add to the legitimacy of a breakout. There are four factors that could trigger a sell signal in the S&Ps simultaneously by a decline below the May 6 low. First, the 2-month cup and handle bottom would fail; second, the 2-month trendline would be violated; third, the May 2 Ben Laden blow-off would be confirmed;

and, finally, the hourly chart symmetrical triangle would be completed. 

I touched the third rail in late April when I announced that Silver was in the bubble phase. I was tarred and feathered on May 1 when I pronounced the previous week’s volume (7.5 years of global supply) was a strong sign that Silver had topped. The market has found support in the low 30s and a bounce into the low 40s is possible as Silver develops its own half-mast bear pattern.

New crop December Corn has traced out a H&S top. It would not be unusual for Corn to top now.

The seasonal chart shown indicates a strong tendency for new crop Corn to top in May or June.

Finally, the daily chart of August Soybean Meal displays a very clear possible descending triangle. A close below the recent lows would complete this pattern and establish a target of 300.

Adding all things up, the period just ahead could be a tough life for raw materials (and stocks).

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What Now, Silver Cow?

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Just for fun, yesterday I did a snarky post on a very short-term “pie-in-the-sky” forecast for Silver. I called for the bounce to stop between 39 and 42 (actual high was 39.47) followed by a decline to below 33, then a rally to 42. The lines on the chart below were drawn yesterday morning.

So far so good. Pure luck…if I am right it will be pure luck. A wild guess! A hail-mary pass! I admit it. Of course, I am far from right yet. Alot can happen. The Silver market (and any other market) can do anything it wants to do whenever it wants to do it and it would not surprise me. The Silver market is NOT accountable to my whims or wishes or wild guesses.

I had a number of folks challenge my forecast, wanting to know on what technical or chart basis I would come to such conclusions.

I have no idea if I will be right — like I stated above, I was taking a wild swing in the dark — but I will share with you my reasoning (right or wrong).

My price scenario was based purely and soley on what I thought the market had (has) to do to most severely punish Silver bulls, more specifically, Silver bulls that are long above 40 per oz. My secret is out! I have told it all. My market call had NO basis in technical analysis. Period! My career as a classical chartist is over. I have sinned against my craft. I created a scenario that was based on what I thought the Silver market could do to most demoralize the johnny-come-lately Silver bulls.

I could have also created a price scenario of what I think the Silver market could do to most severely punish the Silver bears. Perhaps I will share this in the days to come. Perhaps a “punish-the-bears” scenario is the real agenda of the Silver market.

The truth be told, I could care less which scenario comes to pass. I have no vested interest in Silver. I am a trader. I trade price, not market biases, not fundamental scenarios, not Fed doomsday events, not the future value of the US$. And by the way, the last time I checked the U.S. Dollar is not traded in the Silver pit. Never has been. Never will be. There is an actual contract for trading the Dollar.

That’s all for now, folks.

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Silver – What’s next short term?

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Most chart patterns fail and then morph into larger patterns in a process I call “redefinition.” This is especially true of intraday charts. They are extremely unreliable.

With this in mind, here is my best guess on the short-term chart structure of Silver.

On the daily chart, a major top is in place. I keep hearing people talk about waiting for a decent break to buy  — about catching the next upleg in the market. Unbelievably, many “investors” are still bullish on Silver. To me this is a gigantic red flag. Conventional wisdom (i.e., the prevailing view of the marketplace) holds that Silver is in a significant correction within a much larger bull trend. The bias of investors (those not wiped out by the first decline) is to be long.

What we know for certain is that a parabolic move ended in massive record volume in Silver trading (futures and ETFs). This is a sign of a top. The burden of proof is on the bulls. In fact, should the market rally and make a new high it would be one of history’s great shorting opportunities. People have attempted to convince me that Silver was not in a parabolic move. WHATEVER!!!!!

Make no doubt about it, Silver has topped. If it has not topped, it will be many, many months before a legitimate bull trend can re-emerge.

Short term, the hourly chart displays an advancing channel. I believe that a bear market correction to the $39 to $44 zone is possible, but not on this leg up.

More than likely the market will have a further downward correction, perhaps even making a new low for the decline, before a more serious rally into the low 40’s can occur. From a market psychology standpoint, a decline to the low 30’s followed by a rally into the low 40’s would get the bulls all excited again — just in time to be slammed once more.

Then the market should drop into the mid 20’s.

Full disclosure: I have no position. I have no bias to defend. I don’t really care where Silver goes. I am perfectly ok if Silver goes to 5 or to 100. I don’t care if my next trade is short or long. I only care that sometime in the next 12 months the Silver market will give two or three low risk/high reward chart setups.

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Silver — history repeating itself

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Three reasons why Silver might be close to a temporary bottom (within a larger bear market).

  1. There will be support at the trendline from August and January lows. Today could end up as a reversal day.
  2. Small investor may be washed out — this is needed for a rally to occur. SLV had record volume Thursday at 294 million shares. More volume than SPY. This volume represented small investors liquidating, not accumulating. The buyers were people who took profits last week. Sorry, small investors, this is the way the raw material markets work.
  3. The top in 1980 would indicate a rally from here. The rally should not exceed $39 to $42. Do not be confused — Silver is now in a bear market.

“Cops raid the brothel” — part 2

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I left out an important part of history in yesterday’s post on Silver…that is, the origination of the phrase: “When the cops raid the brothel, everyone is arrested, including the piano player.”

I first heard this phrase at the CBOT in early 1980 in direct reference to the Silver market collapse. On the chart below you will note that Silver topped at 5056, dropped quickly to 3025, recovered to 3970, then was destroyed to 1080 and eventually 4 (that is $4 per oz.) for a total decline exceeding 90 percent.

The reported reason for the decline was the failed attempt to corner the physical market by the Hunt brothers of Texas. Today’s equivilant would be a combination of JP Morgan and the small speculators through the ETFs. The CFTC stepped in January 1980 and hiked the margin requirements. The rest was history.

The real reason for the decline was that Silver had no business being at $50, that Silver is a COMMODITY, and that commodities have boom and bust cycles.

Many, many investors got wiped out by the drop. During a meeting at the CBOT, a member made the statement, “Isn’t it too bad that not only the Hunts got wiped out, but little investors who had nothing to do with the manipulation also lost the family farm.”

To this comment, and old-time trader made the statement…”Well, you must remember, when the cops raid the brothel, everyone gets arrested, even the piano player.” I will never forget the phrase or the meaning of the phrase.

By the way, the conventional wisdom during the advance of 1979 (extending far into the 1980s) was not much different than it is today. Inflation concerns, worries about fiat currencies, fed policy, etc. These were the reasons the small investor bought Silver then and the reason they bought Silver in this cycle. Margin call after margin call later, the small investor always plays the role of the piano player.

By the way, a good way to play Silver in stocks is to short the ultra long, AGQ. Of course, pick your spots and use stops. Even if Silver develops into a broad trading range, AGQ will decline.

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