OK, the notion that Silver is in a late bubble stage has hit the mainstream.
On “Fast Money” they were talking about the Silver Bubble and the relative volume in silver vs the SPY and the 2 x Silver Short of ZSL. When it starts to hit the “news flow” it’s pretty much a “done deal”. Maybe a few more days left, but we’re not talking months here.
OK, anyone else?
A “Bing!” search of “Silver bubble” gave:
1-10 of 19,800,000 results
But many of those 19 Million results were about the last Silver Bubble when the Hunt Brothers were involved.
The top listings were:
How to Trade Silver if a Bubble Forms
Apr 26, 2011 · This essay will attempt to address the question of whether or not silver prices are in a bubble, or may be turning into a bubble and if so what trading …
The silver bubble may burn many a hand
The Silver market is in a bubble stage right now. No one really knows how long this will last, whether Silver goes up another $5, 10, 20 doesn`t really matter for …
Investors: Beware of Another Bubble in Silver Prices – Seeking Alpha
Apr 26, 2011 · I know that most precious metal bulls would strongly disagree that silver is in a bubble right now, but one quick glance at a 35-year chart of the metal paints …
News: silver bubble
The Silver market is in a bubble stage right now. No one really knows how long this will last, whether Silver goes up another $5, 10, 20 doesn`t really matter…Town Hall· 21 hours ago
Silver dream run raises fears of bubbleIndian Express
Silver Rally No Bubble as Price Will Top Record, Coeur SaysBusinessWeek
Gold & Silver Bubble? Data Suggest Otherwise …18 hours ago
Apr 27, 2011 · Evidence shows that speculation in gold and silver remains muted as seen in the COT reports and the total gold and silver ETF holdings – neither of which …
Jim Rogers Blog: Gold And Silver Will Be A Bubble …11 hours ago
Apr 28, 2011 · I remember when gold went parabolic in 1980; I shorted it in 1980. It eventually collapsed. Gold and silver will be a bubble some day as will all commodities …
Watch Out for the Silver Bubble – Seeking Alpha
I get an alarming number of questions and comments about precious metals, especially silver. I can remember the same level of interest in oil in 2008, or real estate in …
Asia Commodity Day Ahead: Silver Rally No Bubble …19 minutes ago
Apr 28, 2011 · The following are the top stories on metals, agriculture and shipping. ECONOMIC EVENTS, AGRICULTURE REPORTS: Forecast Prior Time (N.Y.) Employment Cost …
Is There a Silver Bubble? How High Can Prices Go?
Apr 26, 2011 · There has been much talk lately about the price of gold, and how it has been reaching historic levels. Recently, it has closed at over $1,500 per ounce, which
How to detect a silver bubble | eHow.com
By Matt Swayne · Difficulty: Moderate
Like the sudden rise in the price of gold and other precious metal investments, the value of silver soared rapidly in 2010. Some investors think the price has …
The Bubble That Is Silver (Y2K=QE2)1 day ago
History shows us that each bubble needs a tragic muse. The Nasdaq Bubble had both the allure and fear of a new millennium. Y2K was on one hand a software and …
So some other folks are starting to notice too.
Has an interesting description. It does a compare of the Nasdaq and Silver from the Nasdaq Tech bubble:
What if someone had come to you at Nasdaq 3900 in late 1999 and told you that the Nasdaq was going to decline 80% over the next few years? Would you have gotten out after such a great run or would you have continued pouring money into an environment that surely felt “different this time”? What if I told you your upside was capped at 30% and your potential downside was 80% over the course of the next 36 months? Would you take that bet? This might be the exact situation we are looking at with the price of silver today.
If you study the Nasdaq bust and the prior 6 year rally in silver prices you will see some remarkable similarities. After settling at around $7.50 in 2005 silver prices went on a 420% tear to their current price over $39. In 1994 the Nasdaq Composite settled around 750 before prices went on a 6 year 520% tear to their all-time high of 5132. The 3900 level in late 1999 was the equivalent of today’s $39 price in silver. It was a full 30% shy of the top, however, a seller at that level in 1999 avoided a 72% decline in the coming years.
My take on it all? As I said in the first “it’s a bubble” posting, it could easily double. It can also be cut by 80% and then be cut in half again in one day. It’s happened before when the last silver bubble burst. This is a very volatile metal. It will be even more volatile now, since so much is held in ETFs that can be forced to sell with one mouse click or just one down day clearing the stop loss orders and causing a cascade failure.
Some Background Data
On Bigcharts, you can choose a “custom” time frame. Then select “volume” as one of the indicators. Now you can pick up todays volume vs some other date. I chose a one week period about one year ago, then did a ‘visual integration’ to pick out about the “typical” volume. (Yes, all the carp out there can go calculate any of 3 or 4 different averages and get a different average volume. This is “close enough” and “representative”.)
So how has volume changed in a few metals ETFs and in the SPY S&P500 broad stock market ETF?
JJC - Copper PPLT - Platinum PALL - Palladium GLD - Gold SPY - S&P 500 ZSL - Silver "Double Short" ETF SLV - Silver ETF
Today volume vs roughly one year ago 2010 JJC - 275,954 vs 50,000 to 150,000 (volatile volume) PPLT - 164,951 vs 60,000 to 80,000 (so about a double) PALL - 534,010 vs 300,000 to 500,000 (not much change) GLD - 20,489,861 vs 25,000,000 (so gold is off a bit) SPY - 118,500,404 vs 350,000.000 (or about 1/2) ZSL - 33,139,477 vs 100,000 (So shorts are about 330 x) SLV - 179,632,449 vs 5,000,000 to 12,000,000 (or about 15 to 35 x)
In dollar terms, it’s even worse. Today the SPY dollar volume was:
Compare that to the SLV dollar volume at:
So about 1/2 the total dollar volume traded in the S&P 500 ETF (that is THE largest dollar volume ETF bar none).
Think about that for a minute. Eight BILLION dollars of silver. One day. What will happen when Ma and Pa instead of clicking the “Buy SLV” button click the “Sell SLV” button? It will crash, hard.
Since some folks were a bit slow to figure out that I was NOT saying “it is going down tomorrow” on the last posting about metals bubbles, let me make it perfectly clear: I AM NOT SAYING SILVER DROPS ANY TIME SOON. It could plunge tomorrow. It could double first. ALL I am saying is “This is a BUBBLE. Use Bubble Trading Rules.”
That is, expect that it could double, or that you could see it cut in half tomorrow.
For me, I’m not interested in that kind of “play” so I “sit it out”. I was saying “buy silver” back when it was about $10 an ounce. Since then, I’ve sold almost all of it. You buy when things are terribly cheap, not when they are terribly expensive.
Also realize one of my Market Mantras (tm ;-) is “Late in, Early out”. You want to leave a bit on the table for the other guy so they will buy your position. I’m HAPPY to be out early. I sleep better that way. (And again, for those who were a bit slow on the understanding, who tossed mud at me about this last time: That does not mean you can not make money riding it higher or to the last possible moment. Trailing stop loss orders are my vehicle for doing that. What it DOES mean is that for friends of mine who may read these blog postings once a month, I can’t say “Sell TODAY!!!” and have them read it a month late after losing 90% of their gain. I’ve got to describe things with enough lead time for folks to SLOWLY take it in. You may choose to live in the Espresso Line if you wish.)
So look at those volumes. Incredible ramp in silver, negative ramp in gold, nearly nothing in the other metals. Platinum and copper with minor jumps about in tune with their volatilities. WHICH is the odd case out? Silver.
Also notice that the silver SHORT fund is in a rocket ride of volume… Hmmmm….
OK, so is there anything else we can see in this pattern?
A couple of Charts
Look at that spectacular ramp up in volume. Big money (and savvy money that uses things like “ultra short funds”) is starting to place big bets that silver has reached a peak.
RSI is “way low” at below 20, and DMI- (the red line) has pulled below the ADX (black) line. ADX has not yet inflected to zero slope (that’s the “last call” IMHO) but we’re seeing the pattern that happens just before a turn to the upside (that would be a “downturn” in silver) forming here. At this point, the “trend” is still for silver to go up (and this short to go down), but some big money is starting to clear out those positions. (Some folks will be buying these shorts behind existing SLV positions so that WHEN they sell, they don’t care that it drives prices down… they are locking in the profit first. Watch for a giant down day when they dump those positions.)
How about SLV?
OK, same volume ramp but with a longer lead in time with higher volume in the lead. So a lot of total money has flowed in, that can’t flow out in one or two days… and will not have a protective short behind it.
RSI has gone over 80, and on this run is not going as high. DMI + (blue line) pulling away from ADX (black line) to the downside. Getting ready for the fall.
At 33 M contracts, the ZSL is not going to overwhelm the 179 M shares of SLV, but a significant part of that volume being sold to SLV is from folks shorting.
Now this can go one of two ways.
Either the shorts are going to be trapped in a short squeeze, or they are going to make a bundle as the parabolic rise in SLV turns into a plunge. IFF there is a shortage of physical metal for delivery, the shorts will get whacked. It is possible that some of what we are seeing in the SLV price is just that. Shorts buying SLV to cover prior short positions. From these two charts we don’t know what has happened in the silver futures market and what has happened in the physical market. But that ramp up in volume of ZSL is not from folks selling old short positions. There just has not been enough volume of them to make up that recent volume.
So my expectation is that the SLV trade is nearing a climax. Prices ought to “revert to the mean” and in this style of chart, that’s about that 50 day SMA line. Yeah, about $37. If it plunges past that point, there is no support below it for a long ways.
Could silver go higher from here? Sure. All it will take is over $8 Billion PER DAY of new money wanting to buy SLV. About $2.4 Trillion per year. Somehow I don’t think that is going to happen…
Silver Related Tickers
This chart shows SLV vs PAAS a silver miner vs SLW Silver Wheaton, a silver trader.
First off, notice that the silver miner is not keeping up and has not for some time. If traders expected silver to hold this price, the silver miners would be reflecting that in their stock price.
Next notice that SLW had been tracking silver (and with a bit of extra “lift” in the up runs), but even it has decoupled in this last run. The traders are not expecting this run to even be ratified long enough for a silver trading company to hold onto that value.
The canaries are saying to get out of the mine.
IMHO, this is the “last call”. All we don’t know is when the paddy wagon shows up…
This graph shows the various metals and currencies against the dollar. Their gentle rise is reflective of the drop of value of the US dollar. Notice how they are generally moving with about the same slope. (Though some more thinly traded metals, like Palladium, have much more volatility to the price and range more widely).
Now compare to silver:
The excess rise of silver vs ALL the others is indicative of the present bubble character.