Since I began writing for Seeking Alpha, we have had quite a nice and successful run in the metals markets. After publishing an article several months ago calling the bottom in the silver market, our latest market call was published on February 26, calling for a pullback in silver. Specifically, I wrote that "I am expecting the silver market to top out over the next few days within the $36 region."
One February 29, the precious metals entered into what some termed a "flash crash" of its own, and proceeded to begin the correction that was warned about several days earlier. Even before the correction began, we provided guidance that the correction will potentially target the 30-32 region in the silver futures.
As you know, this past week, we dropped right into our target zone for this correction. So, the question many have been asking is what is going to happen in the market now.
What is very interesting is that many market participants have become either quite bearish about the metals, or simply unsure. In fact, when you see so many articles on Seeking Alpha, which is normally very bullish forum for precious metals, suggesting that the bull market in metals may have come to an end or others that are suggesting shorting the market, it does make a contrarian take notice. However, my analysis is not based upon a contrarian perspective but is more in the way of pattern analysis, substantiated by underlying technical readings.
Therefore, at this point in time, I believe that we are quite close to a bottom in the silver market. In fact, we have a relatively full pattern to the downside, but there is still the possibility for one more decline. However, I would consider long positions in this region, with a stop just below the 30 level in the futures.
This pattern is an 85% likelihood in my humble opinion, but, there is also the 15% possibility that the pattern fails. This is why I always trade with stops, and even use out-of-the-money hedges in the silver market, due to its volatility. Although the suggested stop is a much larger stop than I would normally set, the upside potential is for silver to move up by 50% relatively quickly, and, thereafter, potentially double, so I believe the risk is well worth it at this time. Once silver begins its move up and confirms the pattern, I then suggest hedges to be removed, and stops moved up to the actual low.
While I may have to slightly adjust my upside targets based upon the actual low that silver makes, assuming that the low is currently in, my upside targets in the futures would be the 36, 38.70, and then the 43 regions, respectively, in what I would expect would be a very strong initial move to the upside.
Disclosure: I am long SLV.