“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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Saturday, May 10, 2014

Silver Comments

I have had some private email requests to look at silver. This is in response to those who have asked for such.

The chart is an intermediate one so as to give a bit better of a picture.

Bearish forces are currently in control of the market. For the last seven weeks, the $20 level has served as an effective cap for the metal. Bulls simply cannot push the price up and through this level for any length of time.

Bears however have not yet managed to push a weekly close in price under $19 this year. This week's poor showing however resulted in the lowest weekly close since the last week of January. In other words, silver put in the worst weekly close in over 4 months. It is currently sitting in an important support zone on the chart. Failure to hold here and quickly rebound, increases the odds of a breach of $19 which would then target a hugely important support level near the $18 mark.



Note very carefully the solid ADX line is beginning to turn higher. As silver began to accelerate lower in January of last year, that ADX line was moving higher simultaneously indicating the presence of a strong trending move lower. In July the market found a bottom near $18 and began to retrace but that was merely a rally in an ongoing bear market as price failed near $25 and began retreating once more.

The ADX line however continued moving lower indicating that the downtrend had been halted and that the market was more likely to enter a ranging trade rather than begin a new leg lower. Bearish forces were in control but bulls were coming in and scooping up the metal near $19. That has been the case since last fall.

However, the ADX line is now beginning to rise as price nears important chart support indicating that the POTENTIAL for another leg lower in price is emerging. IF, and this is another of those big "if's", chart support near $19 fails, the indicator is going to generate a trending signal. Once that occurs, the $18 zone if going to take on even more significance from a technical analysis perspective as that is the last area that the bears must overcome to generate a move down towards $16.

From an internal standpoint, the Commitment of Traders positioning is revealing.



Look closely at the blue line which is the hedge fund category. Note how it peaked in February of this year. That occurred as silver prices peaked near $22. What is that category of traders doing since that time? Answer - dropping their exposure to the long side of silver. See how that blue line is moving lower and heading towards the "0" line? As of this week's COT report, they are now barely net long by only 988 contracts and options combined. Without active hedge fund sponsoring on the long side of silver, the metal's prospects are not good. Silver MUST HAVE HEDGE FUND MONEY CHASING IT to move higher. It is that simple.

Rather disconcerting is the positioning of the small traders or general public. Out of the entire category of speculators, they have the largest net long position. That is not much comfort if one is a bull and realizes that his allies are among the weakest of hands as they are the least capitalized group of market participants and the ones most subject to margin calls and least able to meet those if the market moves against them.

That is why this region near $19 is so important. With the general public remaining stubbornly long in a market sitting just atop a key support level, hedge fund managers may look to go after their vulnerable exposure. If they do and catch those downside sell stops lurking below the market, a quick $1.00 drop is entirely possible. Rest assured the margin clerks will be extremely busy making phone calls and demanding bank wires.

What does all this mean in simple terms? Bulls must hold the price of the metal above $19 to prevent a rout. Can they do so? Stay tuned as we are going to find out.






34 comments:

  1. Just look at Copper prices...a break down to $2.25/00 looks viable, and if that is the case, then Gold $1000/900s, with Silver 12/10.
    -

    The next wave lower should be enough to wash out the remaining hold-outs in the gold bug community.

    Once Mr Market has dealt with them..then a multi-year floor is in..and the real fun can begin.

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  2. You didnt hear that at a q and a, did you?

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  3. Abraxas, as per your point on the prior thread about how did the S&P look at the beginning of 2009:

    Good points on the whole post, just keep in mind that even the most rudimentary of trend following systems, say for instance, a 200 day moving average, would have gotten you back into the market in July or August of 2009, at maybe 950 on the S&P, and kept you in most of the time ever since. It might have felt "late" at the time, but looks like absolutely generational freaking genius in hindsight.

    I'll be applying the same methodology for when to dump the SPY and buy back the GLD. Might be soon. Might be years from now. I'll wait for the chart to give me the sign.

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  4. A death cross in gold is also in the works. Great call by Trader Dan to advise against the "golden cross" hype last month, especially re: his rationale that prices have to stick above the MAs for it to mean anything.

    Regarding silver, I agree, things look bad intermediate term. Friday saw a big breach of a long term trend line on the weekly chart as well, see here if interested. With the inability to stick the $20 level, it is indeed amazing and quite ominous that specs are still long.

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  5. All I can say is the PM charts look utterly horrific and stock indexes look great. Russell 2000 is off a paltry 4% from world record highs, and still way, way, way above its previous highs.

    Funny how the gold bugs are cheering for a stock market collapse.

    They are simply cheering for their own demise, as GLD and GDX will surely get obliterated in any broad market collapse.

    Eric King and the rest of the gold camp should be cheering for Dow 25,000, as that is really the only hope for gold to see $1,650 again.

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  6. Eric, your point is well taken, as well as Gene's in the previous thread. I get that. I still don't see why it is prudent to invest in the S&P, DOW or Russell now, just because it went up 5 years in row and at the same time short gold because it went down for 3. Guys like Dan (perhaps Mark, Steve, Hubert, you etc.) can play this game and came out as winners because you are nimble enough and can turn on a dime. If I agree to play your game, my losses will probably become Dan's gains. I'm sure to lose if I play that game (not a professional trader), so I'm thinking what stinks now up to heaven, but might be attractive 3 or 5 years down the road? What people love now? General stocks, it seems. What do they hate with passion? Gold. Silver and miners even more. You guys say it's bound to go down for some time now, and I'm not even arguing with that. 3 to 5 years down the road, will it be higher, perhaps much higher? That, I think has pretty good chance of becoming a reality.

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    1. Hi Abraxas,
      Actually I spotted a potential short opportunity on the Nasdaq.
      Besides I am not long SP at the moment, because my last small trades were in a much smaller time unit than the 2week candle chart I've posted, and as most of the time, in the countertrend of the longer bullish timeframe.
      That being said, there is no need to anticipate a reversal by going short to early in this market, when it hasn't yet shown any sign of real weakness.
      As long as SP500 remains in this upwards channel, why the heck should one risk going short?
      But everytime SP reaches the base of this upwards channel, I'm checking closely the faster time unit (2day candlechart or daily) for hints of a breakthrough down.
      Since now, I found none and I every time covered my short positions taken above when we got close to that support line.
      Truth is, if I were a real pro, I would probably have bought massively the SP every and each time we reached this line, but here I couldn't push myself to go long in a market which could fast crach any minute, given the fundamentals of the economy.
      I prefer to short here and there and wait for a panic which will happen sooner or later, as the progression of the SP500 was done without any serious intermediate consolidation.
      I'm trying to be patient.
      I'm waiting for an opportunity on the short side.
      The higher the market goes, the bigger the correction will be at some point, so that's all right.
      Where I won't agree with you is when you write that one has to be very nimble and turn on a dime.
      A long-term 2week candle chart with a central time unit on the 2days candle chart is slow enough that you have plenty of time to decide what to do in advance.
      For the SP500, my personal choice (I don't advise anything, I'm not good enough and may misinterpret) is to do nothing while the SP500 remains in this strong and perfectly traced upwards channel, parallel to its ma20 going upwards as a perfect line.
      If the market becomes too euphoric, then the price will break through by the top, and it is most of the time a sign for a final top. Then will be the time to short.
      If it breaks through down, it will be a sign of weakness, but I will be waiting for SP to retrace upwards one last time and try to reach its tops : after a long long long period of bullish evolution, bulls take time to surrender and don't want to believe that the bull trend is dead. So you have this kind of final bounce. Look at gold chart and its double top in 2011 :). That's what I'm talking about. So there again, there should be a time to short near the top.

      As a trader, you should like the short side of the markets because sometimes they collapse much faster than they go up. Fear is a very short term intense emotion leading to immediate panic decision of leaving the boat with everything.
      What is impressive is that this pattern never changed, because in fact, in the end, technical analysis is but a reflection of human psychology.

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    2. P.S : so you must be nimble to short the SP500 as I did, fighting the upwards trend on the weekly time unit, because your short is based on smaller time units, and confirmed signals on even smaller time units. But you won't need to be very nimble anymore when you get a clear signal on the 2wees or weekly time scale that the uptrend is showing signs of weakness. It's not yet the case, but may appear soon, especially on the Nasdaq if 4000 is not held.

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    3. Abraxas,

      You quite rightly raise the issue of value vs. sentiment. Dan, as a trader often writes that price level of an asset is rising due to money flowing into it and that is the reason to look for opportunities to make money trading that asset. Fair enough, he is an experienced trader.

      You raise the question of . . . OK, people are bidding for that asset, but what is its value over a period of time compared to the current price. You have asked "at what risk" to buy now.

      The following link to John Mauldin's weekly letter discusses that topic of "at what value" at length. I hope you and others here find it useful and informative.

      http://news.goldseek.com/GoldSeek/1399820700.php

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    4. Thanks for the link, Andy. It does make sense.
      A

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  7. Regarding silver,

    http://fr.tinypic.com/view.php?pic=2vm7b09&s=8#.U29NI42KDIU

    What I see is on the weekly time frame, the bollinger bands are still forming a range, and the inf bollinger is in the 18.60 area.
    There is a risk here that silver prices break the recent lows near 18.80 but bounce just lower in this area.
    Indeed, daily bollinger bands are heading down, but prices are already meeting the lower one, so we will have two bollinger bands to 'support" prices on two different time units in the area of 18.60 if prices keep behaving that way.
    I have no positions on silver now, and I am going to be very circunspect about the price action.
    The only way to take a position and get into the market will be to watch the faster time units in search of a signal, i.e the 4 hours candle chart for example.
    So my strategy is to wait for silver, whether to test the recent lows and maybe a bit lower, so the 18.60 area, or to test its ma20 daily once again, and the 19.60 area. Then I would monitor closely the faster time units to see if I can do something.
    Between 18.60 and 19.60, I will do absolutely nothing with silver.

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  8. Hubert, on the wkly charts, the silver is clinging to support here and trying to make a triple bottom, which we both know is a RARE pattern. My bet is we break down and head for $14. As far as the S&P goes, well, again, we both know they slide faster than they glide. Little by little, and ignored by most are the disappearance of former bullish underpinnings. No bell being rung yet, but fat lady is warming up I kind of think or feel. Closer to the 9th inning than the 3rd, for damn sure! Have a good one;; swb

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  9. EEM has been in a sideways consolidation for 3 years, and showing relative strength. All I can say is that is this thing starts breaking out, the measured move upward is simply enormous.

    The gold bugs should be cheering this index on, because if it breaks out of this consolidation, it could put a huge bid under commodities in general.

    http://one.realtimestockquote.com/neochart/neochart.dll?co=realtime&mode=-1&idx_sym=&sb=eem&cn=us&chw=800&chh=300&inh=100&ty=1&ind=-60&inm=-2&sca=1&ref_rate=30&chk_mov=on&mov1=12&mov2=0&mov3=0&boll=0&lin=0&chk_vol=on&rsi=8&chk_sto=on&sto1=15&sto2=5&sto3=5&wil=12&macd1=12&macd2=25&macd3=9&roc1=16&roc2=8&chk_mfi=on&mfi=14

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    1. I don't think it will break out. I've been following EEM for PM hints for a while. Interestingly, since EEM began in 2003, the correlation between it and silver has never been so low (e.g. 50 day). That can't last, so in the next few weeks we're very likely to see both go up or down strongly together. My chart says down.

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  10. I've been waiting/watching for months, a bit more isn't a big deal. at $18.20-40 I'll look at jumping in. that's for physical metal. $17.40-60 is on the radar also. just have to wait and watch the action not the predictions.

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  11. Doomer Durden at Zero Hedge has now posted an article about London's Billionaire residents, comparing the number of those vs. Russian and the United States.

    None of the names I saw were even remotely connected to the gold and silver industry.

    Most of them are newly minted, due to the fantastic rise in the balance sheets of the main central banks, combined with ultra low interest rates, which has created the biggest wealth boom in modern history.

    Never before have so many gotten so rich so fast.

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    1. Mark, we both know that he is just flapping his gums. How the hell would he know anything about individuals and their finances. Just loose bullshit; swb

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    2. Never before have the masses been stripped of their basic needs in American History from the egotistical madmen who run the FED and the government of this country. Rich in paper, poor in spirit. God help us all. READ todays "The Upper Room". Ephesians 2:1-10. "Among whom also we all had our conversation in times past in the lusts of our flesh, fulfilling the desires of the flesh and of the mind; and were by nature the children of wrath, even as others. But God, who is rich in mercy for his great love wherewith he loved us".

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  12. Gold getting obliterated in early Asian trading, $1,277

    KWN "Eggspurts": Way to go guys!!!!

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    1. So what is it today Mr. Mark? What is your great knowledge telling you today?

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  13. This comment has been removed by the author.

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  14. Well lads I am bullish the metals here. First resistance in Si around $19.50 then $19.90 Gold obviously round number then $1310. Shorts to be squeezed imho. But if we get to $1320-30 in gold could be fireworks.

    GL all

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    1. good luck ;)
      I rather see traders being whipsawed further today, except scalpers.
      I'm not doing anything on PMs.
      Have a nice day,

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  15. Looks like Maguire was right after all, early Asian action obviously final flush of weak hands. Spot went to $1280.6 on my platform..Just above those stacked orders at $1280.00...the coincidence is just uncanny isn't it, and on a Sunday night too when volume is incredibly thin. Not that I wear a tinfoil hat....:)

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  16. Hubert if you draw a sloping trendline on Spot si240 from highs on Apri 25, April 28th down to recent lows you can see how resistance has now become support. Duplicate that line to May 07 high and you can see where the resistance is at the mo around $19.50-55. The uptrending lines are from Apr 15 low through May 2nd & May 05 highs....

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    1. Thanks jasa,
      Actually I'm trying to follow my own charts and indicators, because else it's becoming a mess to decide what to do :)
      There are many ways to see a chart and feel a market, most important is to rely on yourself and what you believe is working for you.
      I'm happy that we share our different analysis, though, but if you could post a chart, it would be so much easier :)
      It's simple to do :
      1) print screen your chart
      2) copy / save it on paintbrush as a jpg
      3) go to a website such as tinypic.com and upload the pic.
      4) post the link right here

      At the moment there are to many resistances overhead for me to try anything going long on my time frames. The reverse is true for short.
      So, I stay out of the market. Doesn't mean you are wrong and I am right. Follow your own path, and good trades :)

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    2. You said it. There are as many time frames to look at as there are minutes in a day. And each time frame might mean something different. With that in mind, there is nothing definitive to look at except what one perceives to be the direction of the market. Its that simple.Or one could just start a company , issue stock, have the public buy it, and become a billionaire. Otherwise, trading is tough.

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  17. Here you go Hubert...circles indicate targets, context is bullish...
    http://screencast.com/t/8Ihxqqtefuu

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    1. Thanks jasa :)
      I still think the short term potential up is limited for gold & silver.
      I will pass.
      Nice to share some charts (and thoughts)

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  18. can anyone comment on the flash crash last night
    The Sunday Gold Smackdown: East Ukraine Independence Edition
    http://www.zerohedge.com/news/2014-05-11/sunday-gold-smackdown-east-ukraine-independence-edition

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    1. Sorry too busy making cash and stacking!

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