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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
  • High Volume Distribution In Silver, Molycorp Loses Steam 4 comments
    Apr 20, 2011 5:23 PM | about stocks: IQ, SLV, SLW

    As silver made another new high after gapping up on the open today, there was still large amounts of selling intraday in SLV as well as some of the mining stocks, the most obvious being SLW which is a benchmark silver stock and one that many institutions own because it is a large cap dividend stock.

    I believe that this action supports my claims that silver is overextended to say the least. We know that there is going to be massive resistance at $50, but the large funds and institutions will be sellers before it gets there leaving retail investors with the bag at the top. Let’s take a look at some of the distribution that’s been going on recently:

    There is a lot of buying at the top going on if you ask me. The volume for SLV today was the 2nd highest of all time though I have to ask – does this look like a good time to be buying? We gapped much higher this morning and closed above the upper bollinger band for the 5th consecutive day.

    Huge distribution took place during the middle of the trading session.

    SLW has been stuck in a trading range since the initial breakout a month ago. Given the rising price in the spot market, this benchmark silver play should be at $50 or so by now. Notice the large distribution days that have taken place as the price has been stuck in a trading range despite the increase in the price of physical silver.

    SLW reversed intraday behind large distribution volume. This is critical because the flagship silver play needs to be confirming the out of control spot price.

    Moving on, MCP may have broken the trendline that followed the breakout above $50 a few weeks ago. My stop loss was hit today and now I’m watching this in cash. It doesn’t look like there is much more upside here in the short term and I’m satisfied with over 50% gains after buying in the $45 range.

    MCP broke the trendline which extended from the middle of March. In addition, it closed lower than the 9 Day MA which before marked the end of the previous rally in December. The MACD encountered resistance and appears to be rolling over as does the RSI. The only thing missing from today’s action was substantial volume backing but I have a feeling we’ll see an exhaustion pop within the next couple of days before truly reversing lower. At this point, the risk reward favors sellers of this stock especially if you have profits from buying the previous consolidation which ended in March. I’ll most likely be looking to buy MCP or MCP calls when it becomes cheaper.

    Stocks: IQ, SLV, SLW
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Comments (4)
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  • Alpha Dogg
    , contributor
    Comments (83) | Send Message
    The fact is that the evidence dictates that most of the funds are not in this trade at all. There has been little to no institutional buying, in fact less than 1%. Everyone who has faded this trade has been handed their head. It's a big miss to keep trying to call a top. I've been invested upwards 80% of my account for three months. BTW nobody gives a care about the miners. Why invest in a miner when the smart traders have been pyramiding into the SLV over the last few months tightening their stops. This is the investment of the decade and if you're not in it you have missed a big part of it already.


    You may see a big pop but it might be from 75 to 90.
    21 Apr 2011, 09:41 PM Reply Like
  • Aaron Basile
    , contributor
    Comments (92) | Send Message
    Author’s reply » Thank for the comment. I've been in silver for quite a while both physical coins, but mainly mining companies. I prefer the miners because of the leverage their operating costs give to the price of silver. You're also correct that the majority of funds aren't in commodities but there has been a clear and concise increase in the daily trading volume on SLV and other silver ETF's/mining/royalty companies.


    I think that we'll get our correction before it gets to $50... if you don't think we'll have a correction, then you might as well call it a mania phase before long.
    22 Apr 2011, 11:13 AM Reply Like
  • Alpha Dogg
    , contributor
    Comments (83) | Send Message
    Good article overall Aaron, I should have mentioned that in my post. It's well thought out and appreciated.


    I believe the distinct possibility of a correction is there, but remember the last correction was only about 3%. Keep up the good and constructive discussion and great points you make.
    22 Apr 2011, 11:33 AM Reply Like
  • Aaron Basile
    , contributor
    Comments (92) | Send Message
    Author’s reply » Thanks, I may be wishing moreso than counting on a correction... I just would like to see a consolidation period lasting a few months so that some of the pundits who have started to talk about silver get bored with it. I didn't expect silver to go straight up until at least $50.
    22 Apr 2011, 02:19 PM Reply Like
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