Tag Archive for: SLV

When the cops raid the brothel, everyone is arrested, including the piano player

/by

Silver prices cannot go down, after all, the US$ remains weak! The fed is out of control…inflation is brewing…my macro model calls for further gains…China is still buying…my canary is sick…my mother-in-law bought a new Honda, etc., etc., etc.

This is all I heard as a result of my posts on Silver in the past week. Now, I want to be cautious not to crow, because those who crow end up eating crow down the road.

But the reality is this — Silver is a commodity. As a commodity, Silver is subject to boom and bust cycles, just like Sugar, just like Soybeans, just like Coffee. There is nothing special about Silver. Do you believe me yet?

Let’s put this decline in Silver into perspective. An $11 break in Silver is worth $55,000 per Comex contract. This is equal to a $550 move in the price of Comex Gold, an $11 move in Soybean prices, a $2.20 move in the price of Copper, a $1.46 move in Coffee prices…should I go on?

The Silver market presently is about one thing and one thing only…margin call liquidation. Silver prices have nothing to do with everything people told me would drive prices higher. Silver prices are about thousands of small speculators long above $45 per ounce.

The commodity market behaves like a living, breathing entity. The market instinctively knows when a group of investors are in trouble. And when a group of investors are in trouble, it is like a brothel raided by cops. Everyone gets arrested.

This phase of liquidation will not last forever. But it will last until every small speculator long above $45 per ounce is forced to liquidate. Every last one. Only then will Silver be able to experience a sharp counter-trend bounce. But make no doubt about it, the bounce will be counter-trend. When the bounce occurs an entirely new group of investors will jump aboard thinking the bull market is once again alive and well. These investors, too, will end up in a brothel raid.

###

8 years of global Silver supply changed hands last week

/by

Value of Silver trading equaled 1.5 times the entire value of NYSE trading

First off, before I say anything more, let me congratulate those of you who sniffed out the bull market in Silver and have made a killing. Whether your reasons for being a long holder of Silver (bullion, ETFs, producers) prove to be right or wrong, you have made a ton of money – and at the end of the day this is what counts. I missed this bull move (although I nailed Gold). I admit it. So, whatever I say about Silver has to be placed in the context of the fact that one of the biggest trends in the history of raw materials took place with me as a spectator, not as a speculator.

With this admission in place, let me get to the subject.

I do not ever recall volume (relative to supply) in any commodity or stock like we witnessed last week in Silver. The entire global supply of Silver in 2010 was approximately 1,056.8 million ounces. This includes Silver from mines, government sales, and scrap, with an adjustment for hedging activities.

Last week’s total trading volume in Silver was at least 7, 915 million ounces, counting the Comex plus SLV and other Silver ETFs. In other words, 7.5 years worth of Silver supply changed hands last week.

Historically, huge slugs of trading volume have been either “starting” volume (the kick-off a trend) or “stopping” volume (the end or beginning of the end of a trend). Exceptions to this rule are almost non-existent, although I am sure Silver bulls would say…”This time it’s different.”

Let me put this volume of Silver trading into another perspective.  To date in 2011 the average weekly value of stocks traded on the NYSE has equalled $259 billion. Last week the value of Silver traded (at an approximate average price of $46 per ounce) was $364 billion.  

The unprecedented volume of last week may very well lead to further sharp price advances. But the odds overwhelming favor the fact that a volume in one week equal to 7.5 times annual global production is the start of an enormous distribution phase. Silver ownership is being moved from strong hands to weak hands.

At best, Silver is likely to undergo an extensive and very broad trading range. The shine is off the coin.

###

Silver is a way to play the US$ — NOT!!!!!

/by

If you are bearish on the US$, there are better bets to make.

In recent days many a Silver bull has attempted to convince me that Silver is a play against the US$. I don’t buy it for a minute. Silver is a raw material commodity. End of story. That Silver is considered a semi-precious metal is irrelevant.

In fact, I will maintain that there are far better ways to make a bet against the US$ than by owning Silver. A picture is worth a thousand words. So I will let the graph below do most of the talking for me.

From the price lows of the 1980s/1990s, Silver has increased 13.2 fold against the US$. In contrast, Gold has only increased by a factor of 6.0 – in other words, Silver has been twice as good of a bet. On a pure price appreciation basis, Sugar was a better hedge against the US$ than was Gold. Perhaps we should all be carrying Sugar cubes to protect us against the incompetence of the Geithner/Bernanke cabal.

So what has been the best bet in US$-denominated terms – stocks – all stocks. In fact, the DJIA has outperformed shares in the largest precious metal producers, BHP Billiton and Freeport-McMoran (both of which have outperformed Silver). In fact, the DJIA has outperformed Silver by 33 percent, even after one of the worst performing decades for stocks in history. This does not even factor in dividends – and the last time I checked, the only dividend Silver pays is oxidization stains in the pocket.

If you want to make a play against the US$, Silver is a second-class citizen with the last name of “Bubble.”

This bull market may carry Silver prices to $60 or $70 or — as proof of the market’s absolute insanity — even $100. But I stand by my prediction that within five years Silver prices will be in the teens.

###

Using hourly charts to trade silver

/by

Even a market blow-off has a Silver lining

As a general rule I do not like using intraday charts. The reason is that intraday chart patterns have a failure rate of 75 percent, although I know some excellent short-term traders who use intraday charts in conjunction with various indicators to wring a profit out of the markets consistently. But as for me, intraday charts are normally not in tool box. Normally, that is!

There are rare market conditions during which intraday charts can be extremely useful for scalping and timing. The predominant condition is when a market is in a sharp advance or decline. In such market conditions, intraday charts can be useful for identifying the end of a countertrend correction or brief consolidation. Hourly charts are utterly useless, in my opinion, in broad sideways markets such as we currently have in Copper, Soybeans, USDJPY, to name a few. But for running markets, intraday charts can be a great tool.

Thus was the case this week in Silver. I absolutely believe that Silver is in the blow-off stage of a massive bubble. I have heard all your arguments for why Silver is fairly or even cheaply priced at these levels – Fed policy, weak dollar, etc., etc. Frankly, I don’t buy these reasons. This time it ISN’T different. I heard similar arguments from perpetual Silver bulls for 25 years after the last Silver bubble burst in 1980. According to the Silver bulls then, they were right and the market was wrong. They point to the current bull market as their redemption. Some redemption! Anyone who bought Silver at the absolute low in 1982 has earned a compounded 8.1 percent annually at current price levels. But even this “spectacular” rate-of-return has to be downwardly adjusted for the cost of carry.

Anyway, back to the hourly chart theme. 

Sunday evening I posted a blog stating my opinion that Silver was in a bubble. To traders, having an opinion is different than having a position. Opinions are NOT positions. Early on Wednesday, using Chart.ly, I began posting hourly charts suggesting that Silver was preparing for another (and final?) upleg in the blow off. The intraday charts were clearly showing that a corrective phase in Silver was coming to an end. Following are these Chart.ly posts. 

“Think SI is in blow-off, but one more big leg poss. Watch rect on hrly chart for timing.” Apr27 6:32AM.

 

 “Resolution of hrly chart will either lead to another up leg or confirm a possible top.” Apr27 12:50PM

 

The, finally…”Hrly rectangle completed. Should usher in new up leg.” Apr27 1:59PM 

So the lesson is this – in sideways and choppy markets, except for the swift of foot, intraday charts are not very useful; but, in running markets intraday classical chart patterns can be used for low risk scalping. By the way, the target of 47.84 from the rectangle bottom on the hourly chart has almost been reached as of this writing. And notice that a new rectangle is appearing on the hourly chart.

By the way, there is another lesson in this story. Taking positions against one’s bias is not only possible, but can often be quite profitable. To a trader, an opinion is not a position and a position is not an opinion.

It will probably be another year before I blog about hourly charts.

###

How do you spell bubble?…S I L V E R

/by

The Silver market is within months, or even weeks, or even days of a major top.

The Silver market has entered a classic blow-off top. There is no question but that Silver is a bubble in the making…and will soon be a bubble in the breaking.

The similarities between the current exponential spike in Silver and the Nasdaq in the late 1990s are striking. While Silver could surge significantly higher before the top (driven by investor mania and CFTC-sanctioned cornering /short squeeze maneuvering), perhaps even to $60 or $70 per oz., the odds are very high that Silver will be back in low teens within the next five years.

Silver currently is right in the blow-off sweet spot that drove the Nasdaq from October 1999 to the March 2000 high. Once again the individual investor will be burned badly.

Millions of investors have bought into the idea that the Silver is the best thing going – that between global supply and demand factors and a hedge against paper currency, Silver actually deserves to be priced at current levels. There are actually web sites touting $200 and even $1,000 Silver prices.

The Silver market reminds me of the mania surrounding the Nasdaq – just prior to the start of its 81% decline into 2002. Do I think Silver could experience an 80% decline? Absolutely! Of course, the shorts could go broke before Silver finally tops, so I have no desire to step in front of this run-away train.

Many of the investors in the raw material markets today are unfamiliar with the boom-to-bust-to-boom-to-bust nature of the commodity markets. So, if this is you, enjoy your profits now, because if you are a long-term bull on Silver, your definition of “long term” is likely to be redefined in the decades ahead.

I am also including a chart of the last grand bull move in Silver. A picture is worth a thousand words.

In the commodity markets, what goes up will eventually come down.

###