Should You Short Silver Now?

Includes: AGQ, SLV
by: Avi Gilburt

Over the last two weeks, I suggested that the silver futures were headed to the 31.60 region, to be followed by a decline which should ideally target at least the 28.67 region. While we topped at 31.53, and then saw a nice decline, which bottomed at 29.12 for a 2.39 decline, and a nice short trade for those that took it, we still came up 45 cents short of my minimal target.

But, before I discuss the next market moves in silver, and whether it will still reach the lower levels cited in the last article, there is a "fundamental" issue I need to address once again, and that is the so-called "manipulation" perspective.

Despite the fact that I have attempted to debunk the ultimate effect of so-called "manipulation" in prior articles, there are many of you that still hold steadfast to this perspective. But, has it helped you become profitable in this market, or has it simply been an excuse as to why the market was not doing what you expected?

The question one must ask oneself is "if the market was moving in the direction I expected, would I feel that the market was 'manipulated'?" I can almost guarantee you that the answer would be a resounding "no." You would feel that the market is doing exactly what you expected based upon your "analysis methodology," so there would be no need to question whether the market was manipulated or not. But, if it is not doing what your analysis methodology provides the majority of the time, could it be your analysis methodology is ineffective?

In fact, was there even a single complaint that the market was manipulated in 2011 when it was headed to $50? I did not hear a single one of these voices standing on their soap box yelling that this market was being manipulated. Did the manipulators take a vacation in 2011 or was it that the analysts and investors simply felt so smart that the market was heading in the direction they expected that, in their very limited view of this market, it was not being manipulated at that time?

Well, I have news for you - either the silver market is manipulated all the time or it is not manipulated at all. So, the manipulation theorists must maintain the absurd perspective that, in 2011, the manipulators manipulated the market to the manipulators' detriment, because they were still maintaining sizeable shorts at that time. If you take any other position, you are being intellectually dishonest in your analysis, and such analysis is simply not credible.

My point is that this "manipulation theory" is continually espoused by only those who "feel" that silver should be over $100 and lock themselves into only that perspective. Have any of you ever opened your minds to another perspective that could possibly provide you with more accurate expectations other than silver should only be going up? If you understood how it was sentiment, and not "manipulation," that moved the metals, you would no longer maintain a staunch position that "manipulation" has a significant impact upon the silver market.

So, what if I was able to show you an alternative methodology which would provide you with the appropriate expectations of market movements over 70% of the time, and, based upon that methodology, you would clearly see how the markets would move in the direction you now expected? Would you not then abandon your "manipulation" theory? This answer would likely be a resounding "yes." So, if my methodology is calling most of the market movements to the point of expectation (many times within pennies), why should I believe in the "manipulation" theory?

But, you would need to open your mind to a new perspective in analyzing metals, and abandon your prior theories which have only led you to frustration, and which cause you to play the blame game. This blame game starts with the perspective that you are simply too smart to be wrong in your analysis of the metals market, and if it moves in a different direction than you expect, it is simply because someone else must be manipulating the system. Of course, you will always find the supposed factual basis to bolster your argument, and you think that the number of shorts in the market, or whatever other reason you may chose, provides the necessary support.

Mr. Benjamin Franklin has provided us insight into the human mind regarding this manner of thinking:

So convenient a thing it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do.

However, once you are able to move beyond your own ego and learn to look at the market in a more broad sense, the perspective that sentiment moves the metals market becomes much more appealing, and leaves you with much more accurate and reasonable expectations. And if it is providing accurate results in a much more statistically significant manner, why would you hold steadfast to one that is not if not only for ego sake?

Also, when I say "reasonable" expectations, I do not mean to imply that markets move based upon some form of reason or logic. Heaven forbid I leave you with such an expectation. In fact, I have mentioned in prior articles that the "reasonable" expectation after the Fed announced QE3 and QE4 was that the metals would have skyrocketed to the expected $100+ region since it was only "obvious" to all market participants that there would be inflation that would ignite the metals' parabolic move.

But, that was not what happened, was it? This seemingly logical or reasonable "fundamental" perspective was not validated by a parabolic silver rise. Rather, we saw silver move to within cents of the topping target I gave you based upon my tracking of market sentiment, and then come down by over 15%, also expected based upon the tracking of market sentiment. But, again, many of you still make the arguments in your comments to my articles that this was only due to manipulation. But, I sincerely hope that you reconsider your perspective and come on over to the "dark side" of the force. You never know ... maybe the manipulators are following my analysis!

As for silver's upcoming movements, I said that until silver can move beyond the 31.60 level on strong buying volume, lower levels were still to be expected. This past week we saw a move higher to just below the 31 region in the futures, but on low volume. In fact, it moved up right into a Fibonacci turn point on our charts. While this can serve as the top for silver for the move down to the lower levels we have cited, it is still not out of the question that we can move back up towards the 31.60 region before the next decline begins.

My lower targets still remain valid - 28.67, 27.98, or as deep as 26.87. So, to answer the question in the heading of this article, yes, I am shorting silver in the very near term as a short-term trade.

But, I am not a foolish trader, as I still maintain a sizeable long-term long position in the event the parabolic rise begins sooner than I currently expect, as I am expecting a significant low to be put in in the near term. I recognize my fallibility as a human being, and understand the larger trend, for which I am prepared.

But, even if silver does not move in the direction I expect every now and then, I will not be playing the blame game and will simply recognize that I am wrong on approximately 20-30% of my silver trades and it is no one else's fault but mine, and it is not anyone else that is "manipulating" me out of my money.

I look forward to meeting many of you at the New York Traders Expo on Tues, Feb 19, 2013 at 1:00-1:30 pm ET at the Marriott Marquis Hotel, where I will be speaking about Elliott Wave and Fibonacci Pinball. I will be meeting with attendees right after the presentation in a Q&A gathering at the hotel.

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a short term put position on SLV.