SLW Follow Up

Yesterday I out out, Trade Idea / Set-up (Intermediate term Position/Longer Term Trend) SLW, this is one that I like as a short for an intermediate term trade, but was not going to chase as it was down  -3.61% yesterday, but as we could see yesterday and as commented in yesterday's post,

"Here are some charts of SLW, this is a trade I suspect you could enter right now short and be fine, but I don't like chasing anything, I'd rather let the trade come to us to give us a much better entry and risk profile....today's higher volume sell-off creates a probability of a short term oversold event starting to play out and that's where this becomes a high probability/low risk position."

And today, bounce it did. This is not the ideal bounce I'd like to see for an entry, but I think if you like the trade these kinds of bounces (this is why setting price alerts to remind you are so important) are useful for entering in staggered positions, you can get a little on today's bounce, maybe 25% or 1/3rd and add to it on any further bounces which  is NOT Dollar cost averaging which is an attempt to lower your average cost to get out of a bad trade, this all is part of your risk management before you ever enter the first share.

Looking at SLW, this seems to be an ideal place to add, but considering the GLD/GDX posts and the silver/miner connection, I suspect we will see some higher prices to add in to. Make sure you check out yesterday's post, Trade Idea / Set-up (Intermediate term Position/Longer Term Trend) SLW,  for the larger picture as this is only an update.

 This concept that was mentioned yesterday is directly the opposite of what Technical Analysis teaches. Any technical trader seeing a -3.65% day donw on heavy volume "thinks" that is smart money selling, IT'S NOT, they call them smart money for a reason and they don't let you see anything they are doing unless they want you too, 3C is our only real window in to what they are doing.

Most T.A. traders would have stayed short SLW yesterday expecting more downside today, this is the concept I have pressed numerous times lately, these larger volume days are often short term oversold in this case or overbought volume events.

Note the Bullish Harami upside reversal pair of candlesticks created yesterday and today (if it holds on the close), that's the upside bounce I'd want to short in to as there's terrible deterioration in SLW on the important charts (see yesterday's post).

 Here's the bounce today, it's not that much, it could be used for a ophased in entry or you can just wait and see if the trade comes to you,  it's important to be able to say, "this trade didn't offer me the set-up I wanted, I'm moving on". There are a lot of busses out there, one every 15 minutes so there's no need to take a sub-optimal set-up.

Remember, your assets should always be deployed in the best trade scenario/set-up with the best risk/reward profile always keeping in mind not to have too much exposure to any one group or highly correlated group.

The 2 min SLW intraday chart looks like it could gather some more steam for the bounce we are looking for to short in to, I see a possible scenario unfolding...

This is the 1 min intraday with a negative divegrence that has correctly forecasted the intraday decline, but the stronger 2 min chart still looks pretty good.

Note the VERY tight correlation between SLW and SLV (red), this is an example of two positions you would not want together in your portfolio as they are likely to move the same and effectively act as 1 trade with no diversification. However, it also tells us that we can look at SLV for additional hints and confirmation.

SLV, like SLW has a horrible looking longer term chart, 60 min. that suggests both are going to see significant, tradable downside, this could be in line with the broader GLD/GDX pullback, but whatever it is, it's probably worth trading if you are looking for a precious metals short play. Shorting SLW gives you advantages regarding use of margin that would not be available to you by using an inverse ETF like DUST for example as it is a short on gold miners with leverage, but in reality it is a long trade you buy.

For more information and an article I wrote some time ago defeating the age-old scare tactic against short selling which says, "You can't make more than 100% in a short as a stock can only go to zero", however with most brokers that's not true, here's the article, Making More Than 100% on a Short

Because the way short profits are treated in a margin account, you can use a portion of the profits without having to sell like a long position, this allows you to pyramid up a position as it works in your favor and it is possible to make more than 100% in a short. This is why I prefer leveraged ETFs for the initial move in the market until I see what sectors look the worst and then prefer to move to straight equity shorts.

In any case, the point here being the correlation between SLW and SLV and the same very strong negative divegrence suggesting a move quite a bit lower.

 SLV has an intraday positive divegrence so the possible scenario I see in SLW if it's not just a straight Harami upside reversal, would be ...

SLW pulling back and forming a broader base, still not very big and good for a bounce only. It would likely see a head fake move to run stops before moving higher. This is not the trade I'm interested, long SLW, the trade I'm interested in is Short SLW in to some price strength to give a better entry and lower risk profile.

The alerts I will be setting for SLW are ABOVE $26.75, 26.90. 27.00 and 27.25. At each of those levels I'll check SLW for short term distribution on a bounce as an entry area as the longer term, more important charts are already very negative, strategically SLW is a short, tactically I'm looking for the best entry.

Later, SLW will likely become a strong long candidate, but that's in the future, 1 bridge at a time.