“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, May 11, 2011

Silver - 4 hour chart

Risk-off trades have returned with a vengeance today. I believe a fair amount of the selling is tied to hedge fund panic type selling related to the conviction of a hedge fund manager on insider trading violations. That seems to have terrified the hedgies and has them running out of everything with the exception of the US Dollar. It has also put a mild bid back into the bonds (once again - everytime they appear to get ready to rollover, they are resuscitated - more evidence that the US bond market is the largest rigged market on the planet right now - these things have more lives than a cat). It is my firm conviction that the US monetary authorities are doing everything in their power to break the back of the commodity rally and prop up the rotten and utterly worthless paper IOU market (Treasuries). They are fully at war with the speculative community.

Silver, after briefly moving back above $39 in Asian trading, was once again obliterated. Ditto for the energies, gasoline in particular, which dropped so sharply at one point during the trading session, that trading was halted and then reopened under extended trading limits. Consumers will of course welcome this sell off.

One can now make the case that a bearish flag formation has been formed on the daily silver chart but I should note here that it still remains well above the recent low near $33. Additionally, a large number of longs have already liquidated their positions in this market meaning that those who bailed out down near $34 and under are already gone and are no longer around to provide downside fuel from their selling. Open interest readings indicate that a decent number of new shorts were also blown out of the water leading me to believe that this market is very soon going to begin consolidating and working sideways as only the bravest, or perhaps the most foolish, are going to be placing large bets in the silver market any time soon. Trading this market in size is a guaranteed, sure-fire way to become bankrupted. My counsel is to forget about figuring how much money you might be able to make on your trading positions and begin worrying about how much you might lose.

As said in yesterday's post, this market is running on wild swings in emotion bordering on near despair to wild-eyed optimism. Markets like this are to be avoided in size (if you are going to trade them, trade small) until they calm down and begin consolidating which lets them wring out this idiotic emotion. I will welcome a move that drifts down towards $34 if that happens to see how the market reacts to this level once again and to give us a chance to see whether or not the bottom forged near $33 is a good one. For now, we have a bottom at $33 and a top at $39 which is the new trading range until proven otherwise. There is a chance that $35 could hold on the downside depending on how much further the Dollar can rally.

You will note that silver did make it up to the 38.2% Fibonacci retracement level before it failed so from a technical standpoint it is producing fairly accurate readings on the chart right now.


16 comments:

  1. Hi Dan,
    Agree with you analysis 100%. I think the current support levels will hold and we'll trend for a week or two.
    Nice time to accumulate PMs and PM stocks.

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  2. Thank you, Trader Dan. You have provided some necessary comfort. This downward spike is un-nerving to say the least. I am invested in PSLV and physical; I do not trade and would not trade the silver maarket. I am hearing from people like Dines, Sinclair, Russell that we have a long way to go in this bull market. What does the technical analysis you conduct point towards? I am keeping what I have as I was able to improve all my positions with the last down spike. Your thoughts would be greatly appreciated. As always, you are appreciated for all your hard work.

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  3. thanks again Dan

    looks like a double bottom shaping up?

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  5. "I believe a fair amount of the selling is tied to hedge fund panic type selling related to the conviction of a hedge fund manager on insider trading violations"

    Dan, commodities were already selling off big time before the verdict was announced.

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  6. I hate to say this (in part because my observation deals with a tool that some have mastered and relied on for so long), but technical, or chart analysis can--at best--only be seen as partially (if at all effective) in these rigged markets. And this is true now more than ever. Look at the impunity with which the bank cartel is doing what it wants to. Look at what happened to crude today, and silver last week.

    What is happening here has parallels to what is going on in the MENA countries. There, we are watching how government are losing control and, in a response of panic, tightening the noose around the neck of their citizens, turning every official statement into a propaganda declaration, and using psy-ops to get their way (aside from just pure, brut, unethical force and violence. In a similar attempt to control things, banksters here (and the administration) are manipulating facts and events, and they are doing so in ways that are brutally destructive of the middle class.

    In this environment then, technical chart analysis means far less than it ever did. As long as the CFTC does not restore order to the markets (i.e. end price manipulation), there will be no way to sanely foresee anything; except, that you can bet on the fact that the banksters AND THE ADMINISTRATION ITSELF will continue to jack us around at whim. This will continue until the CFTC puts an end to the at-will actions of the banksters (which is unlikely given their status as part of the "plunge protection team"), or until the markets and/or economy implodes ... or a black swan event happens. Because these (or some derivative thereof) is likely to eventually happen, things will eventually even out, but not without more bloodshed (i.e. financial loses and loose of faith in our government).

    Read my opinion piece on why the CFTC will do nothing here:

    http://thesilvergoldhedge.blogspot.com/2011/04/reason-why-cftc-is-doing-nothing.html

    For some levity and my call to action, watch this animation:

    http://www.youtube.com/watch?v=vs7-yDO6i9Y

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  7. silberblick;

    Have to disagree with you. TA works just fine in these markets. Actions of the bullion banks always leave footprints. I think what you are reacting to is more a case of why silver does not go higher. Yes, price capping is here and is real but it shows up on the charts and sets resistance levels. That is what is supposed to happen. The same TA tells us where Asian buyers and other larger players see value. This process has been going on now for nearly a decade and in that time period anyone knowing how to apply TA has done just fine.

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  8. "This process has been going on now for nearly a decade and in that time period anyone knowing how to apply TA has done just fine."

    In normal circumstances (like during the last 10 years), yes, I would agree with you. However, we have never seen the markets as blatantly and egregiously manipulated as they are now. Nobody foresaw the depth and viciousness of this (correction). And who is speaking out against this. As far as I know, nobody of consequence on the levers of power (certainly not with regard to silver) has spoken out about this (see recent Ted Butler comments about how silver investors are treated like second class citizens).

    As I said, this is about a desperate attempt to control (I likened it to what we are seeing in the MENA countries). The perception of "everything being just fine" must be maintained at all costs, or the dollar and US economy will collapse in short order, and we can't have that now, can we?

    With little to stop them (actually nothing to stop them with their naked shorting and The Bernanke printing as much money as they need), the banksters (and the administration) will get their way. 6-7-8-9 dollar spot market price drops in silver required in one day? No problem. They have flexed their muscles and shown that if (and that's a big "if") increases in fiat currency valuation of silver are allowed, then they will be at their pace and with their permission --- chart analysis to hell. Only a great, more powerful force could overcome this, like the Chinese, but they don't seem see any use to the price of silver increasing while they are still stacking.

    In summary, I do believe we have reached a new level of market interference (due to the fear, need for control, and quick-boiling frothiness of the silver market), and that technical analysis will be more limited in value than ever before. The danger in not seeing this is to promise a too rosy picture that will not materialize (either in terms of the speed or the nature of unfolding events). That aside, you can bet that I will continue to highly value every word you utter Dan. Your commentary, insight and advice are of immeasurable value to us all.

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  9. 2 year chart:
    http://i53.tinypic.com/9qelhz.png

    Unless we see more shenanigans from the higher ups, this should be the low for silver.

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  10. @arkel

    "Unless ..."

    Yes, and that is a big "unless." What reason do we have (as the US and world economic situation gets more and more desperate, that the administration, the Banksters and the crimex will "lay off" and just let things develop as they may? It's just not gonna happen.

    The only way to win here is: (1) to buy silver, (2) to buy as much as possible (which will help bring down the system), and (3) to patiently wait until this damn house of cards comes down.

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  11. CORRECTION:

    The only way to win here is: (1) to buy PHYSICAL silver ....

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  12. silberblick - I agree the banksters will manipulate from time to time, but I cannot base my entire investment strategy on what they will do or won't do.
    I like to use TA in addition to fundamentals to predict where prices will go, but I understand manipulation will take place which is why it's good to keep some powder dry to take advantage of the sales they provide.

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  13. @arkel
    Yes I guess it depends on how you invest. If you are buying paper silver, are long or short, etc., then people face the dilemma you mentioned. If, however, you buy and hold physical silver, you can just wait without any angst (or hoping your TA is correct) until the entire rotten edifice collapses on its own putrid weight. That's what I am doing.

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  14. Both points of view are valid. One can accumulate physical, while simultaneously playing both sides of the futures game.

    Dan is SO right to remind us that, in a trendless mkt with high volatility, you can suffer SEVERE losses, coming and going. You simply have to wait it out, as hard as that can be psychologically

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  16. I hate to say this (in part because my observation deals with a tool that many have relied on for so long), but technical, or chart analysis can--at best--only be partially (if at all effective) in the rigged silver market. Many would say the same about the gold market. Look at the impunity with which the bank cartel is doing what it wants. Look at what happened to crude today, and how silver was savaged last week. You can take a look at my blog to find the links to many articles that deconstruct the strategy being used to brazenly suppress the price of silver.


    What is happening here has parallels to what is going on in the MENA countries. There, we are watching how governments are losing control and, in a panic response, oppressing their citizens, turning every official statement into a propaganda opportunity, shamelessly lying and distorting facts, and using naked, brut violence to retain power. In a similar attempt to control outcomes and hang onto power, banksters and governments in the West are manipulating facts and events, and they are doing so in ways that are brutally destructive of the middle class.


    In this compromised and distorted environment, technical chart analysis is out of its depth. The fact is that as long as there is market manipulation, there is no silver "price discovery" mechanism in effect, nor will there be any meaningful way to reasonably predict the silver market. Only one thing can be said with certainty: banksters and the US administration itself will continue to manipulate the dollar and commodity markets as they please in order to preserve themselves (as in the case of JP Morgan), or to preserve the illusion that the US economy is improving and not imploding (as the US administration would have us believe). These conditions are sure to continue until the CFTC puts an end to the command and control actions of banksters (which is unlikely given their status as part of the "plunge protection team"), or until the markets and/or economy self-combusts ... or a black swan event happens. Because these (or some variation thereof) are likely to happen eventually, many have prognosticated that gold and silver will ultimately go parabolic, but not before the masses are subjected to more agony (i.e. financial losses, job losses, loss of faith in their government, etc.).


    I have concluded for myself that truly "winning" in this environment means: (1) buying physical silver, (2) buying as much as possible (which will help bring down the system), and then (3) patiently waiting until this whole house of cards (the Crimex, the dollar, the economy, etc.) comes crashing down.

    http://thesilvergoldhedge.blogspot.com/

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