In preparing to write my current article for Seeking Alpha, I went through my usual ritual of perusing the recent metals' articles written on Seeking Alpha. And, guess what I noticed? If you read these articles day after day, week after week, and month after month, you notice a recurring theme: Is there anything really new being offered?
The exact same topics are discussed over and over. "China is a big buyer of metals" . . . "India is a big buyer of metals" . . . "The Fed is going to taper" . . . "The Fed is not going to taper" . . . "QE did not help the metals" . . . "the metals are a safe haven" . . . the reasons are endless and simply circular in nature. In fact, you can read one article which points towards one of these reasons that will cause the metals to rise, whereas another article will use the same reason to bolster the position that it will fall. But, over the course of the last two years, we have shown you clear facts which invalidate all of these "reasons" as being the driver of the metals, at least for those who are truly interested in being intellectually honest.
The "flavor-of-the-month" now seems to be that the metals have rallied due to the potential for the escalation of the conflict in the Middle East. But, did anyone even look to see if the metals began this rally BEFORE this issue in Syria came to the forefront? Personally, I view any analysis that attempts to link this rally in the metals to "Syria" as disingenuous and intellectually dishonest. In fact, we were already halfway through this rally before the "Syria" issue even came up.
So, maybe it is time to take a step back and actually think rather than simply read. If we could "reason" our way through a determination of where the metals were going, would we not be best served in engaging a logician to assist us in our market analysis? Well, I have never seen a logician employed to this end, and probably never will. That is because markets are not moved by logic, but rather by emotion.
So, I wish that someone could finally explain to me why we continue to pour over reason after reason as to the "why" the metals will do this or that, rather than focusing on the "how" they actually move. If they are moved by emotion, or "sentiment," as I believe, would it not be best to seek out a methodology which tracks the movements of such emotion or sentiment? I think you all already know my answer.
What is even more frustrating is that one can simply mention the name of a particular analyst, and you will automatically know their perspective. It seems that analysts in metals, more so than any other sector, are convinced of a particular direction and will never diverge from that perspective even in the smaller time frames. The metals are either always going up in their opinion, or always going down. (Well, other than Dennis Gartman, who has the uncanny ability to be strongly advising a position in the metals just at the point they are about to turn in the opposite direction).
Yet, so many remained resolutely bullish week after week for the entire 64% haircut taken by silver investors. Yes, yes, I know . . . "the fundamentals for silver are just as strong now as they were at $50." And, if someone cannot see the absurdity of this perspective, then I am sorry to say that 64% losses will be commonplace for you.
So, in perusing the many recent articles on the metals, it does seem that more articles are coming out now with a more bullish stance. But, remember that this is simply an anecdotally based perspective from my perusal of articles on Seeking Alpha. For a really nice summation of sentiment numbers on the metals, Pater Tanebrarum wrote an interesting piece entitled "Gold Sentiment Update." So rather than my recreating the wheel, feel free to read his article to get a flavor of the sentiment numbers in the metals market.
But, I track sentiment a bit differently than most. I view that sentiment is patterned, and markets are driven by these sentiment patterns. So, allow me to provide to you what these patterns are saying, at least from my perspective.
Two weeks ago, I provided you a short term selling region for your silver trades, which proved to be a smart move, as it banked your profits on your short term long positions just before silver dropped approximately $2 (8%) from the highs we were targeting. Last week, I provided you the pullback target region, which, thus far, has also been quite prescient.
However, at this time, I am going to slightly modify my upside targets. As long as last week's low remains intact, my expectations will be for you to hit at least the 25 region to as high as the 26.40 region for the silver futures. I am going to be very cautious with my short term long positions as we approach the recent high, as silver is known for its double tops. So, if I see the pattern projecting into that prior high, I will not hesitate in selling my short term position, and banking those profits. But, as it stands at the close on Friday, it does seem we should see a higher high.
Any break down below last week's low would be a potentially bearish event from my perspective, and a break down below 22.25 would confirm to me that we are heading back down to the 17 region. Of course, I will be looking for evidence that a break down below 22 will only be a corrective decline which will not make a new low, but, as it stands now, I will likely be looking for a new low.
But, please do note, I will be maintaining my position in my LEAPS (but they will be hedged) even in the face of this next decline, since silver is known for its strong turns when a low is finally struck. And, I will be likely adding to my LEAPS on the way down, as I view this as a final decline in the current correction, which has lasted a bit over 2 years. Whether silver will then target new highs and potentially over $60 is still a question in my mind, but I would imagine we will see at least the mid to high 30 region after the next decline. We will know more about a larger target only after we have begun the expected rally into 2014.
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 intermediate term hedges