Silver is closed today at $41.51, less than a dollar away from the opening price on April 11th, which was the first day that I publicly expressed caution in the silver market. I wrote “Is Silver Approaching Phase 3?” Days later on April 17th, when silver had eclipsed $42. I sold out of most silver positions on the 20th and continued to remain out of the silver market and instead to think about getting into gold, uranium, or rare earth stocks citing large amounts of distribution that were going on in SLW, AG, and SLV.
Silver charged towards $50 but fell just short and is now 20% away from that 30 year high. Meanwhile, gold is only 3% away from its YTD high. Certainly the 3 CME margin hikes had a lot to do with the recent price activity, but they have done us a favor and may have prevented a premature mania phase in silver. As for where the price goes next, I am not looking at silver for an indication of momentum, I am looking at gold, the SPX, The Dollar, and The Euro.
Simply put, I effectively timed the top in the parabolic silver market. Most traders and particularly silver bugs, become extremely defensive when other analysts attempt to call tops, (one I know of was accused of working for JPM) but market analysis can be made easy with plenty of practice and dedication to research. Some of my readers and friends were with me on this trade and I want to say congratulations, this was an extremely big sell that we reeled in.
I am not looking at silver to gauge silver’s next move. It is far too volatile and despite closing below the 20 Day MA in what seems like forever and being roughly 20% from the near $50 top just one week ago, it still maintains that trendline going back to late January. So despite what seems like a massive selloff, silver has still yet to confirm a correction in my mind. A real correction would be a snap of an uptrend and a retracement back to a support level. What we’ve seen over the last week is simply a pullback to a trendline, which is nothing more than a bullish consolidation, unless of course it breaks through trendline support.
If you have read my commentary as of late, you’ll know that I am expecting a reversal between the USD and the Euro which would be bearish for precious metals and cause a consolidation similar to the one we saw last year. However, given the fundamentals of the silver market, maybe you want to enter a long position just to be safe. Well, some of the mining companies are already priced out of $35 silver so averaging into a position would be a smart way to play that from the long side.
Ultimately, I think that it is a mistake to try to trade silver outside of intraday swings at this point. I would stick to the SPDR’s and GLD and stay away from the silver miners and ETF’s on a swing strategy until the market becomes more stable.