"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


Friday, April 29, 2011

SLV running up Enormous Volume

It seems as if Silver has caught the attention of the trading/investing public in a significant way based on the enormous volumes being recorded in both the Comex silver market and the IShares Silver Trust or SLV.

The volume in the Comex, especially on Monday, was so large that I initially thought it was a typo and would be corrected by the exchange. It was not. That day the volume of contracts traded hit a whopping 319,000!

Not to be outdone, SLV registered a volume of nearly 190 MILLION shares. To give you an entire of how massive this was, consider that an average daily volume comes in near 35 - 40 million with an occasionally busy day hitting closer to 50 million.

I find this especially disconcerting as it tells me that there is the potential for a lot of froth forming in the market. Please understand, this is not to say that the bull run in silver is over; far from it, as I fully expect silver to trade closer to $100 before all is said and done, particularly if the Dollar drops below 68 on the USDX. However, with volume this large and so much interest in owning the metal, it might need to take a bit of a breather before moving higher into a new upleg.

That would provide a lot of bulls who are nervous about buying at these levels an opportunity to acquire more of the metal at a better price. Rignt now the metal is unable to move past $50 - that means if a trader buys in now at these levels, he has the potential to make perhaps $1.50 on the trade before it stalls out again while the potential for the market to fall as low as $45 exists, a drop of some $3.00 or so from current levels. That is a risk/reward level of 1:2 to the downside. Those are not good trading odds which is why we are seeing some speculators selling up near $50. They want to see the price clear this level before feeling comfortable coming back in on the buy side up here.

Should the market move lower and especially if it were to for some reason take out $45 on the downside, the risk/reward ratio begins to improve tremendously. Would-be longs will then we looking for an entry point once they feel that the market has established a decent base of support from which to move higher.


  1. Dan,

    Nice job on showing GLD:TLT.
    I have heard various views on CEF. Hedge fund shorting?

  2. Thank you Dan for making sense of it all.

  3. @ Dan - Bigger volume = greater interest in owning silver is a such a wrong conclusion. That particular day the huge volume happened due to the extremely large volatility. It was a high volume blow-off top sort of move, only it has proved not to be a top. Traders naturally tend to flock to markets where there is volatility, as more volatility = more money. I am prop trader. Made a killing that day in Silver futures. 10k with 1 lot only. So its natural that volumes will increase dramatically on a day of large volatility. This though doesn't equate to a greater interest in owning it.

  4. Dan,
    you fail to mention that the volume on the 2x inverse silver contract was almost as great-to me that is extremely bullish .

  5. Dan,

    You said if a trader BUYS at these levels it is a risk/reward of 1:2 on the downside.

    So...wouldn't if make sense to short at this level. In other words, wouldn't the risk/reward odds be 2:1 in the seller's favor under this scenario?

    (I trade the mini silver)

    Thanks Dan. Between you and TF I'm trying to survive/thrive in this risky business.

  6. @ fred

    do you really want to short something that is in this short of supply and this explosive?

  7. Only in the very very short term :)

    And maybe not at all. Just have to see how the market looks this evening...


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