Silver: Last Chance For Immediate Breakout

Mar.17.13 | About: iShares Silver (SLV)

Even though many have recently turned very bullish on the US dollar, despite all the Quantitative Easing engaged in by our Fed, as I noted last week, I wonder how many of those bulls have even given thought to the fact that they have turned bullish on the dollar despite further QE. Does this not run completely counter to their fundamental sensibilities?

Ultimately, I am hoping that those that attempt to trade via fundamentals have learned some lesson from the dollar rally, as well as silver's loss of over 20%, in the face of further QE. At the very least, I am hopeful that my articles are making them question their misguided paradigms.

Well, despite all of this bullishness for the USD, I warned that a significant top was potentially approaching. In fact, I provided a topping target region for the DXY in my last silver article, which was hit this past week. We then saw a strong decline in the dollar, as expected. While we await confirmation that another nominally higher high within our target box will not be seen in the DXY, it seems to me that the dollar will begin a very strong decline in the not-too-distant future.

Furthermore, everyone is now jumping on the inflation bandwagon, pointing to the last CPI report which is suggesting that inflation will rear its ugly head. So, since significant infusions of QE have not helped the metal bugs in their staunch belief that the metals should have broken out already, they are now switching horses, and have jumped all over the latest CPI report. "Inflation is here," they seem to be screaming, and, once again, insisting that all of those that are as wise as they are should load up on the metals as we are going to explode to the upside right here and now.

While they are providing yet another seemingly "logical" reason as to why the metals should rally - in addition to a potential dollar decline beginning soon, does that necessarily mean that silver will correspondingly explode to the upside right now? Well, not necessarily.

Has anyone ever been able to prove that markets act "logically?" So, it still makes me scratch my head as to why people believe they can jump from story to story, and continue to make the same assumptions. One day, when the metals do finally begin the next parabolic rally, they will again point to the latest story, and claim that they were right all along. But, what about the 100+ similar reasons that were pointed to week after week up to the point of the breakout which only resulted in further declines in the price of the metals? Again, metals analysts are probably among the worst of those inflicted with the dreaded "broken-clock" syndrome.

But, in truth, I am still not convinced that the low we have seen for 2013 is "the" low before silver begins its rise over $60. Based upon the pattern I am now seeing, silver is in a very precarious position with regard to further breakout potential, and that applies no matter what the dollar is doing.

I said last week that until silver moves "strongly through the 29.26-29.97 region . . . please forgive me for remaining skeptical. We have seen too many of these false breakouts that never confirm, so I will continue to remain skeptical until I see at least a minimal structure telling me to become more immediately bullish."

But, even if silver does not move through the cited resistance region, I also wanted to remind you of what I said last week and strongly urge that ordinary investors should not be shorting silver very aggressively at this time, as any decline can ignite a "snap back move so violent that it can take you from a profitable short position to a loss in the blink of an eye . . . For now, the time for easy money on the short side has passed for most investors, and the shorting game has become very dangerous at this time." So, only the most experienced and nimble of traders should be looking at the short side in silver, assuming a breakdown is seen in the upcoming week.

So, until silver is able to move through my cited resistance region this week, I think we could see a set up that takes silver down to our next lower targets of 27.45 and 26.87. Remember, as I said last week, a breakdown below 28.31 opens this door wide open.

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I also have protective intermediate term put options on SLV, and may short on a break of cited support.