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We are reaching a fervor in the silver market now.... for those who watch the intraday action, the entire market has turned into the "anti dollar" trade and yesterday was a prime example. The dollar held in ok in the morning, then began to weaken once the FOMC announcement was made just after noon. Gold and silver began to run. As Bernanke began talking in the 2 oclock hour (effectively denying the Fed actions have anything to do with the greenback's action) the dollar began to fall apart, and gold & silver shot up, especially the latter which has become the high beta trade.

(Click charts to expand)

This story in the WSJ highlights how much fast money has moved into silver. The most popular trading vehicle for the general market is the SPDR S&P 500 (SPY) ETF. On Monday, volume in the silver ETF actually surpassed SPY! And Tuesday was quite close as well. Amazing for an ETF that is relatively new to the market, but this is fever pitch action at its best.

People keep emailing me about silver, and I will keep repeating the same mantra - the near term upward move usually ends in momo trades like this on a big intraday reversal (with volume). i.e. when the ETF jumps up to begin the day, but acts poorly later in the day and closes on the low (preferably low than the previous day), on a big volume spike. Maybe it is "different this time" because The Bernank is in a personal war with the U.S. dollar, but that is usually the sign to look for.

  • The mania for silver has spread to the stock market as day traders pile into the buying.Trading got so heated during the past two days that shares traded in the iShares Silver Trust, the biggest exchange-traded fund tracking the price of silver, topped that of the SPDR S&P 500 ETF, usually one of the most actively traded securities in the world.
  • Day traders "are going crazy," says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. "It's typical of the bubbly speculation that's been going on in silver."
  • On Monday, trading in the silver ETF was especially heavy, as silver prices soared to new 31-year highs and approached $50 an ounce. The heavy ETF trading continued on Tuesday, as silver prices retreated.
  • Volume in the silver ETF on Monday reached a record 189 million shares, compared with an unusually low 65 million for the SPDR. The trading in the silver ETF was five times that of the 37 million daily average of the first quarter and blew past its previous daily peak of 149 million shares set in early November. On Tuesday, the silver ETF's trading was 125 million shares, falling just 21 million short of the SPDR volume.
  • The volume in silver ETFs is remarkable because the ETF until recently was relatively small and was shunned by mainstream traders. Its ascent reflects a surge in appetite for silver, which itself is reflecting a rise in the price of gold.
  • Trading volume of silver futures contracts on the commodities exchange owned by CME Group rose to 319,205 contracts on Monday, a 58.6% jump from its prior record hit in November. Month to date, the contract's average daily volume has more than tripled compared with the same period last year. Total outstanding contracts in the silver-options market also reached a record on Monday.
  • The evidence of day-traders flocking to silver can be seen in the surge of trading in high-octane ETFs designed to magnify the moves in silver prices up or down. Trading in ProShares UltraShort Silver (ZSL), an ETF that offers a levered bet on falling silver prices, totaled more than nearly eight times its average daily volume over the last three months. The fund is down more than 40% in 2011.
  • On Monday, "we saw a lot of the shorts capitulate," Mr. Redler says.

Disclosure: No position

Source: Silver ETF Volume Beat S&P 500 ETF in This Week's Heated Trading