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Silver Makes A Run At $50

Apr. 25, 2011 11:25 PM ETSLV, UUP, GLD, TLT, TBT, FXE
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Seeking Alpha Analyst Since 2010

Contrarian Investor, Commodities Speculator, Technical Trader.

This time yesterday, silver made a run at $50/oz by hitting a high of $49.79 in the Asian markets before losing steam and having an unbelieveablely volatile day in the US markets. As I type this, silver is trading lower in the Asian sessions, currently at about $45.50. Some analysts, including myself have been cautious and have slowly been putting in hedges and/or taking profits out of silver. Currently I some have money in cash and I am not likely to be a buyer of silver until it enters a correction and confirms a bottom. At this time I believe there are better contrarian plays out there such as uranium stocks and ETF’s (i.e. DNN, URA), rare earth junior producers outside of MCP (i.e. UURAF, GWMGF), long dollar ETF’s (UUP) or shorting euro ETF’s (FXE) and/or long US bond ETF’s (TLT). I don’t have a position in any of them except for UURAF and GWMGF, but if the proper buy signals present themselves I may enter in some of those positions for a short to medium term holding.

Friday I took profits on AG, SLW, AUNFF, and RVMID. Still very bullish on those four companies but currently, I see opportunities with more upside and the risk/reward in silver right now doesn’t appear to be attractive.

I don’t believe the risk/reward is worth it because bullishness in the charts is out of control while bearishness in other charts like the dollar is also out of control, but to the sell side.

% Above Simple Moving Averages

9 MA – 8%
13 MA – 10%
20 MA – 13%
50 Ma – 22%
100 MA – 30%
200 MA – 42%

Of course, I don’t expect it to return to its 100 or 200 MA but the spread is worth pointing out and the spread from the short term trends is more than enough to keep me away from the buy side – a 13% drop in the next 2 weeks would not be unprecedented based on the 20 Day MA spread. Another spread to watch is the MACD histogram which is currently at a whopping .52.

What makes the daily chart for SLV so bizarre is that the selloff was relatively predictable after the price made a run at $50 overnight but the massive selling volume was met with a rejection of what would have been a reversal on the daily chart, and ended up being a bullish intraday reversal that ended in record volume for the ETF. It was as if panic buying was the answer to the capitulation. In any case, silver remained higher and has again refused to make any kind of correction, let alone a mere consolidation back to a short term moving average.

I’m not going to spend my time calling a top though I believe I have disclosed my sentiment on the situation. Here’s one last chart to end today’s analysis. It’s the daily chart of SLV and you can see the staggering volume which thoroughly trumped volume of the reversal day in November. That day the CME raised margin requirements on silver and gold. Last night, the Shanghai Gold Exchange raised margin requirements on silver to 15% from 12%.


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