Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Timid Silver Bugs Could Miss the Next Big Rally

Commodities / Gold and Silver 2012 Jul 23, 2012 - 10:33 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleSilver investors and speculators are amongst the manic-depressive you can possibly find in the investment world. When they are playing maximum credits on the slots and passing round boxes of cuban cigars and taking out massive loans to buy Ferraris and Lambos you know it's time to watch out. When they retreat into the shadows, only coming out to hurl themselves off bridges and other tall structures, mumbling about the "cartel" as they plummet earthwards, you know it's getting time to buy - and that is the situation we now find ourselves in. In this update we are going to examine evidence which suggests that, despite the fragile looking price pattern, silver is going to turn surprisingly strong in short order, or alternatively, if it does break down, it turns out to be a false move that is swiftly followed by a dramatic recovery.


On its 3-year chart we can see that silver has been severely testing its key support at and above its September and December lows in recent weeks, and with its falling moving averages bearing down on the price overhead, and this being the 3rd major test of this key support, clearly there is some risk that it could crash it and plunge, yet while this is certainly true, various indicators are telling a story of gathering internal strength, and we will examine these a little later.

Staying with the 3-year chart a very important point to note is the current unbeatable risk/reward ratio. With the price hard down on support after a long period of retreat, those buying here have the opportunity to get in right at the start of a major uptrend if it does start higher from here, and can guard against serious loss by the simple expedient of placing close stops beneath the support. If this is obvious to us, then you can bet that Big Money is aware of it, and by Big Money we mean those with sufficient clout to muscle the market around to their own advantage. So what might they do here to make even more money? - crash the support, and run the little guy out of his remaining positions before a dramatic reversal back above the support leading to the major uptrend starting that we are anticipating. This is why it is so important to be ready to jump back in if, after failure of the support, the price then reverses back above it again, accepting the modest whipsaw loss as the possible cost of this strategy. Given the unusually bullish COTs and sentiment indicators for silver, it does not look likely that failure of the support would lead to more than a brief plunge that is quickly reversed, the only exception to this being if we see a 2008 style market wide total meltdown, and while this of course possible it does not look likely over the short to medium-term. The Accum-Distrib line shown at the top of the chart looks remarkably positive and is in itself a good omen, although we know from past experience that this indicator cannot always be relied upon. The current very low volume, about the lowest since the 2010 and 2011 Christmas holidays, is another positive sign. A new uptrend in silver will really gain traction and accelerate once the price succeeds in breaking above the red downtrend line shown on the chart.

The 6-month chart for silver shows a downtrend in force from March that parallels the one in gold. With the price approaching and then backing off from the upper boundary of this downtrend about 8 times now, it is clearly valid and very important, and while for various reasons we are thought to be at an optimum entry point here, the safer approach for would be buyers is to wait for the price to break out upside from this downtrend boundary, which as it is now close by above, would not involve missing much in the way of gains - unless that is the price takes off like a rocket upon breaking out - which is quite likely given how obviously important this downtrend is. There are several other lesser but still important points to note on this chart, which are the run of "doji" candlesticks that appeared last week that are indicative of a situation of extreme indecision - total standoff, but coming as they have after a drop they indicate a higher chance of a resolution to the upside, especially given that upside volume last week was predominant, which we can see reflected in the rising Accum-Distrib line shown at the top of the chart (On-balance Volume, not shown, also rose). Lastly the Bollinger Bands also pulled in tightly, signifying that pressure is building for a big move.

From what is set out above it will be clear to more sophisticated traders that we now have a near perfect setup for playing it both ways - a raft of straddles (Calls and Puts with the same strike price) or "strangles" (Calls and Puts whose strikes are both out of the money, and which are thus cheap) - and the current low volatility, if it persists into tomorrow, will mean you can get these on board cheaply. If the support fails and the price plunges you quickly ditch the Puts for a whacking great profit and hang on to the Calls. If, as we suspect, the breakdown is the result of Big Money running the little guy out of his positions by triggering his stops, then we can look forward to a rapid reversal back above the support enabling the trader to at least recoup the cost of the Calls and very possibly make a profit on them too. If the new uptrend develops from here, then you simply hang on to the Calls and write off the Puts, and you should end up with big gains.

A big reason that we are believed to be at or very close to a bottom here is the latest silver COT, which looks exceptionally bullish, with the Commercial short positions being close to record lows for this bullmarket, and the Large and Small Spec long positions being close to record lows. Unless we are just entering an era when things are suddenly very different, this is a classic indication of a major low in silver. The rationale behind the bullish implication of this is that the Large and Small specs' interest in silver is at a very low ebb, so their long contracts, which the Commercials counterparty, are a very low level reflecting this lack of interest.

Chart courtesy of www.sentimentrader.com

The silver public opinion chart shown below is such a reliable barometer of the foolishness of most silver speculators and traders that it is almost comical. Why don't they refer to it? - just too stupid, I guess. It's a good thing they don't because it means that people like us can use it to our advantage. As we can see the "great unwashed" have a low opinion of silver at this time, and that has to be bullish.

Chart courtesy of www.sentimentrader.com

Finally, the long-term 15-year chart of silver relative to gold is interesting as it shows several interesting things. The first is that during the early days of the Precious Metals bullmarket silver underperformed gold, and it got treated as almost worthless trash during the 2008 market crash. Then, after a period of recovery, it really went nuts in a big way for the first time ever in late 2010 and early 2011, with silver speculators becoming totally manic before being overcome by blind panic and exiting their positions just as fast or even faster. Now silver bugs are licking their wounds and feeling decidedly timid after the severe kicking they have received since May of last year - it's kind of sad really considering how attractive silver is now compared to those earlier heady days - but we can surely count on them getting interested again - once the new uptrend has become well established.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2012 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in