SLV Update

In responding to a member's email about SLV and GLD I said in a nutshell, that usually I want to rely more on price action then stories, rumors, etc, but Silver and Gold are both such a fundamental issue that you must keep up with the fundamentals to some degree. Silver and Gold both are used as an alternative for those that believe the fiat money system is dying. While Silver is used for that purpose, not to the same extent as gold.

By now we probably are all aware that JPM (because of an inherited short position when they took over Lehman Bros.) and HSBC have been trying to keep silver supressed to protect their shorts, it seems they lost that battle decisively and the price action in Silver has shown that with a parabolic ascent with no pulbacks, this is typical short covering action. Silver is historically cheap compared to Gold, however there's also the reality that the trade has become a very obvious trade. I've been thinking that Silver will see a scary shakeout soon to reset the trade, Wall Street doesn't make the most of a trade when retail is running with them.

So last night we had several developments, at first a Chinese economic slow down was blamed and Silver lost nearly 20% from its highs on Friday and 15% off the Friday close. Last week we had margin hikes as well in silver, there are many different conspiracy theories one could follow, but I don't have time to run them all down. Then there was some news that the Bolivian government would not be nationalizing silver miners. It all seems somewhat irrelavent, the fact is that the massive selling in Silver came at a time when volume was quite low and that makes it much easier to create the sell-off effect -especially given margin increases. It seems pretty obvious that Silver was targeted for a shakeout, the overnight action devoloped shortly after I had written in an email to a member that I believe they create a massive shakeout soon. Last night many stops would have already been taken out. Look at Gold today and Silver, Silver was obviously specifically targeted.

 Here were my two first impression pullbacks, as you can see, SLV has pulled back to both the 10 and 22 day moving averages in the past (yellow and blue respectively). $42 would be a fairly deep correction.

 Here's the recent SLV action on a 1 min chart and why I thought at least a pullback to the 10-day was coming, the move in SLV has been quite parabolic, but there's some obvious distribution from Thursday/Friday of last week. The longer term charts, at this point still appear to be bullish

 This I think would be a worst case scenario, to the $40 area, but $42 is where I'd be very interested in looking for a long or add to position.

Here's this morning's retracement of most of the gap, you can see 3C went negative at the 11:22 highs. The only question in my mind is whether last night's hit job took out enough stops, they wouldn't be able to take out stops that weren't already placed (mental) so I'd think that it is likely that we'd see more downside to get the mental stops and take advantage of margin calls.

If we can get a decent pullback and signals that SLV is under accumulation, I think it would be a very good opportunity. Personally, I'd be patient here and let the trade unfold a little more.