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As a contributor to the New Low Observer (http://www.newlowobserver.com/about-this-site), we intend to give new insights on a low risk approach to trading in dividend paying stocks for tax deferred accounts. The New Low Observer (http://www.newlowobserver.com/about-this-site) is not intended for... More
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  • Precious Metals Follow-Up 7 comments
    Apr 13, 2013 2:28 AM | about stocks: AEM, SLV

    Silver

    On February 11, 2012, we wrote a piece on Silver and SLV titled "Correction of Errors on iShares Silver Trust (SLV) Interpretation" (found here). In that article, we said the following:

    "The current indications suggest that SLV will fall as [low as] the $22.14 support level. Because silver easily fell to the third support level in the period from 2001 to 2008 (within the context of a precious metal bull market), we expect that the $21.02 is a realistic worst case scenario to watch for. We will consider buying silver and related derivatives at $22.25 and below.

    "We view the most recent rise from the December 2011 low as running out of steam. Therefore, the rising resistance level established at $28.70 appears to be firmly in place…for now."

    As seen in the chart below, Silver has declined to the rising support level of $21.02 in many instances but broke through to the downside on February 18, 2013.

    (click to enlarge)

    From a technical standpoint, the next downside target for silver may be to the $20 level if the current levels don't hold. However, under typical circumstances, any point below the $21.02 level is considered undervalued. While it is possible that Silver could fall further we don't play the short side since we're in the position to accumulate good values. Values at this point trump the guesswork of when to enter and exit the short. We believe that anyone interested in the upside potential to silver should thoughtfully accept the potential loss of -50% or more and purchase in two stages, once at a predetermine price at or below the current level and a second time at or below the first purchase.

    Agnico-Eagle Mines (AEM)

    On April 6, 2012, we recommended the consideration of Agnico-Eagle Mines (AEM) (found here). On September 25, 2012, we recommended selling of AEM (found here). While we got a lot of heat from readers of the SELL recommendation, from the less than brilliant to the reasonably rational, our work has proven that precious metal bull markets are vicious and should not be taken lightly.

    After our recommendation of AEM on April 6, 2012, the stock rose nearly +40%. When we gave the sell recommendation of AEM on September 25, 2012, the stock increased an additional +11%. However, as of April 12, 2013, AEM is down -27% from our sell recommendation and down -37% from the November 2012 high at $57.33.

    (click to enlarge)

    Never under-estimate the power of a gold bull market. We hope that our work on this topic has been instructive.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: holder of silver and gold since 1996

    Themes: Gold, Silver Stocks: AEM, SLV
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Comments (7)
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  • NLO, a few good calls. Silver time to load up?
    16 Apr 2013, 07:05 AM Reply Like
  • Hammer, I would say more like an utterly brilliant call...

     

    NLO, this is one amazing prediction considering Ag was trading at $31 and change...

     

    If we do take any miner positions, they would be closed out at a loss of 3% or less...
    16 Apr 2013, 12:41 PM Reply Like
  • Author’s reply » Greetings BlueIce,

     

    If we had secret sauce to our work it would be a fear of loss. We assume that every single thought of acquiring a stock is going to lose at least -10% to -20% at the point of execution. With that kind of perspective, though irrational at times, we look for tools that help us identify losing strategies and downside risk.

     

    As an example, the Gould Speed Resistance Line are applicable for upside potential as well as downside risk. However, we cannot get out of the rut of seeking the downside. Our assumption is that the upside will take care of itself.

     

    We have to admit to getting lucky with the AEM call. However, not being able to leave well enough alone, we had to advise selling even when there was little to indicate that the downside was likely.

     

    Again, downside risk is our ONLY concern. After that we run the fundamentals and play the odds from there if the company is compelling. All in all, we've been fortunate.

     

    Thanks for following our work and commenting.

     

    Regards.
    16 Apr 2013, 01:49 PM Reply Like
  • Author’s reply » Greetings TH,

     

    Thanks for following our work.

     

    At this point silver is considered a value. We recognize that there is still some downside risk. For those hardened enough to accept declines of -50% or more, a two part purchase now and a second purchase at -25% below the first purchase would be considered reasonable. If -25% never materializes then we don't bother chasing to the upside.

     

    Based on our technical indicator (from this article: http://seekingalpha.co...), we're 1/4 away from a full blown back-up-the-truck, can't-miss, sell-dividend-increasi... to buy gold and silver stocks.

     

    What is more fascinating is that the article we wrote back then assumed the most conservative of the worst case scenario. If we achieve the final downside target, our calculation of expected return would double and possibly triple that of gold.

     

    We're going nuts 'cause we can't believe that we're so close. If it arrives, our buy of gold and silver stocks with blindfolds on, the estimated gains will be one of the few times that gold stocks live up to the reputation of being perpetual options on the price of gold with outsized gains more than gold.

     

    Those are our thoughts on the matter. What do you think?

     

    Regards.
    16 Apr 2013, 12:54 PM Reply Like
  • bought some physical silver, but it is very hard to buy without large premiums.
    17 Apr 2013, 05:53 AM Reply Like
  • Hammer, why are there large premiums in a declining market ?
    17 Apr 2013, 09:13 AM Reply Like
  • I do not know but the fact is the higher recognizable silver bullion carry high premiums eagles mapleleafs englehard bars. To pricey for me $6-7 premiums to much for me.
    10 oz bullion bars at 247.50 not bad deal. Pan american silver corp bars.http://bit.ly/YvfOYv
    never bought from them but found pricing was good. if we have another leg down breaking into the teens this is the vehicle to buy biggest bang for buck.
    17 Apr 2013, 11:46 AM Reply Like
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