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The Bubble has Popped, Now What?

May 12, 2011 11:20 AM ETSLV, GLD, USO, DBC
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Risk management, Portfolio Strategy, ETF investing

Seeking Alpha Analyst Since 2008

SmartStops.net is a real-time risk management service dedicated to helping investors of all levels better protect their profits and minimize their losses. Buying decisions are made on a risk / reward basis. Unfortunately, the past measurements of "risk" have proven insufficient. SmartStops.net optimized methodology provides a continually adjusting measurement depending upon individual stock or ETF behavior combined with overall macro market trend behavior.  


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 by Raghu Gullapani,  SmartStops.net contributing editor
A rare halt in oil trading Wednesday triggered a sharp sell off in commodities and equities, in markets afraid of an encore of last week’s commodity plunge. The last halt in oil trading occurred in September 2008, a week after the collapse of Lehman Brothers.
Sliver lost 9% in the sell off, erasing gains in the previous couple days and is down another 6% in the pre market (as of when this was written). It has yet to find a bottom or to a paraphrase Bob Barker, of the Price is Right, “Down, down it goes, where it stops no one knows.” Now with the increased margin requirements driving a number of speculators out of the market, the precious metal may seek out price levels more in keeping with historical norms. Those prices are calculated by seeing how many ounces of silver are needed to buy an ounce of gold. Over the past ten years the ratio has been roughly 60:1. If silver were to return to a similar ratio, it could go down as far as $25 an ounce. iShares Silver Trust (SLV) the proxy we use in lieu of silver at Smartstops.net has the short-term stop at $31.97 and the long-term stop at $29.37
It that wasn’t enough to make you reconsider being long commodities, Powershares DB Commodity Index Tracking ETF (DBC) has formed a Head and Shoulders. A pattern associated with a change in trend direction. The neckline/support of the pattern, coincides with the Smartstops.net short-term stop at $28.16 and the long-term stop is $27.30

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