Many of you who have read my analysis over the last year have learned that I am neither a silver bull nor a silver bear. I simply look at silver as another tradable asset and will trade it whichever way I see it going. Furthermore, my trading decisions in the metals are based upon patterns, which makes many very uncomfortable, at least based upon some of the comments I receive.
Back on February 26, 2012, I published an article on Seeking Alpha warning all those who read my articles that "I am expecting the silver market to top out over the next few days." In fact, just as it moved beyond the $37 level in the futures, I told all my subscribers and clients on February 28th to sell their long positions. On February 29th, we saw the "flash crash" in silver take hold.
While my initial thoughts were that this correction would not take more than a month or two, and should find support over the 29/30 region, the market has clearly had other ideas. This correction has now dropped several dollars below my primary targets and it has also taken a lot longer than I had expected. But, the market has not fallen apart and it has not invalidated its larger bullish pattern, as long as we remain above the December 2011 lows.
Over the last several months, we have seen metal bulls turn to bears, back to bulls, and then again to bears, and sometimes even within the same week. This week has been no different. While this correction has clearly taken much longer than I had ever expected and has also gone deeper than I had expected, I have remained staunchly long with a suggested re-entry in the metals' market of only a 25-33% initial position, after I suggested to clients to sell our last long positions on February 28th, the day before the metals' "flash crash."
We have not wavered in this position, and have not whipsawed into entries and exits, back and forth, in this market as the rest seem to have been. Rather, we have been waiting VERY patiently to determine if the pattern we have been following will validate with a move up to new all-time highs, or if this pattern will break down with a break below the December 2011 lows. While we have come very close to invalidating this pattern several times, it has maintained its support and its larger bullish pattern thus far.
So, now, do we get uber-bullish, as many seem to have become due to Friday's price action? I think not. While what we saw on Friday was clearly a good start and what we would expect the start of an expected break out in the metals to look like, we are still looking for that ever-elusive pattern up off the lows in the metals, which will then cause us to buy another 25-30% position on the pullback / consolidation that follows.
So, I will provide you with the resounding warning that I have been issuing to my clients and subscribers for the last several months:
We do not have the signs of a break out nor do we have signs of a break down. We only have signs of a corrective decline.
However, any move over the 30.00 level, accompanied by larger volume, is our first clear indication that the next rally phase has begun. But, until such a breakout has been seen in the market, and as long as we are above the 2011 market lows, then we are simply left with a seemingly impulsive 5 wave move off the 2011 lows, and an overlapping, messy, corrective decline on positively diverging technicals. Nine times out of ten, this is indicative of a strong rally about to begin, and we are all in the business of trading patterns that provide us with high probability set ups.
At this time, moving beyond 28.74 and then 30.00 in the futures are the big keys to seeing silver in a much more bullish light, with a target around the 31 region before a consolidation / pullback, thereafter followed by the next phase of the rally with a minimum target of 37. Depending upon how the market moves up to the 37 region should tell us if 37 will be the high for 2012, or if silver will be headed over $50 relatively quickly. So, as long as we remain over the December 2011 lows, the market is still set up in a bullish pattern.
Disclosure: I am long SLV.