In an earlier posting I’d said SLV was in a bubble and that it was not safe. While I’d expected it to take a bit longer to go POP!, the raising of margin requirements over the weekend has accelerated that. I had given a “heads up” in an even earlier posting, so I don’t feel too bad about the timing of the last one (Thursday night / Friday morning and without a lot of time to exit before this plunge day), but still, I’d figured it would be another week or so. My Bad.
So where are we know? IMHO, at the top and mid-pop.
Yes, as with all bubbles, it is always possible for The True Believers to overwhelm all reason and drive things up further. But that becomes ever less likely the further you go into the parabolic phase (and we were pretty far into this one…)
At the time that “Failure to advance” happens, the momentum guys leave the trade. Then when “professional shorts” are hitting a top “way hard” and cause a “spike down day” near a peak, you know that big money has moved to the other side.
Today the market opened with major sell orders. Someone was selling big. (IMHO, the folks who bought the protective puts behind their long silver positions which I speculated about in the last posting).
So what does it look like when things are in the middle of a top?
The Action Today
These are charts of SLV vs GLD. They are static captures at the end of the market day today. (Live charts are down below). You will want to click on these to get a clean view of them (as I’ve not taken the time to convert them to a jpg from the gif that Bigcharts hands you…)
First off, notice the ‘failure to advance’. Even toward the end of Friday we had the MACD crossover to the downside on a day trader basis. Second, notice how the SMA stack has gone into a ‘tangle’ (that I call a “topping weave”). Now we’ve also got a giant day long plunge on volume and with the price resolving to below the SMA stack. We want to see similar things on the 6 month daily chart in coming days to confirm that the run is over. At this point, it’s a “day trade basis correction” and with the long term trend still setting the rules of trade, but at a top, that reverses, and we ought to see the longer term trend set up confirm this reversal in the next week.
Also notice how the market opened up “Gap Down”. There was ZERO chance for a stop loss order to sell you out at the higher prices of last week. That is part of why I want to be “early out” in volatile markets like metals.
At this point, the “news flow” is informing a lot of folks that they just lost 10% of their “preservation of value” money… as they oh so slowly decide to bail, we could see even more “gap down open” days.
(The “typical pattern” is a “whack day” like this, a day or two pause for more pigeons to buy back in, then the Whale comes back for a round of relentless shorting. At that point it’s way to late to get out near the top. The best you can do is dump what you have as soon as possible even if it is down 15%… Which is why you don’t want to be getting into a bubble trade anywhere near a top.)
So I’d not be surprised to see tomorrow open up a ‘bit’, maybe even close about at the highs of today. But only if we get a “higher high” than prior days is it likely that this was a “one off” and not a “bear raid”.
Oh, and notice that MACD is below zero, mouth down, and red on top. DMI is red on top too. Negative day trade indications.
So from this point on, we’ll be looking at daily price bars on a 6 month chart.
Here are the 6 month daily charts:
Now we’ve got the “kink” in the black ADX line that I’d said was “missing” in the last posting. That pretty much confirms the trend higher has broken. Similarly the red and blue are setting up for a crossover. We’ve got MACD on this scale headed for a crossover to “red on top”. Not yet confirmed, but it’s a pretty strong setup. Furthermore, RSI has started “steps down” from over 80. It would take one heck of a run up to reverse that. It’s saying “out now”.
Price is not yet back at the SMA stack. In a profound run up, prices can come back to the blue line (24 or 25 day SMA line) and then head up again. This will not be a confirmed drop until prices are under that SMA stack (as in the 10 day chart above, but on this longer time scale).
On this chart, the lower indicator is the Slow Stochastic. It’s a faster trade indicator. It is clearly “mouth down” saying “trade out” (and for reasons I can’t possibly fathom, it has “blue on top” when saying sell… as that’s the silly color code that Big Charts uses for this indicator).
Williams %R has gone below the midline. That’s also a “sell” indication.
Now look at volume. Spectacular down volume today. Mild down volume on Friday. We are picking up volume to the downside. We now want to see a ‘mild up day’ in the next day or two, but where volume is weak to the upside and prices fail to reprise old glories. That is the signal that it’s all downside for a while (and a nice time to put on short, or to sell out of the long side of positions that were hedged with a protective put or “short ETF” neutralizing position leaving a net short position. At “toppy times” I’ll put on a protective short or put a neutralizing ETF position in place, then just sell out of the “side” that fails to advance in following days.)
OK, now on to some “live charts” so you can watch this unfold on future days.
Some Background Data
JJC - Copper PPLT - Platinum PALL - Palladium GLD - Gold SPY - S&P 500 ZSL - Silver "Double Short" ETF SLV - Silver ETF
In the last posting I’d said:
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.
It is even more spectacular today. That leveraged short fund is just smoking.
How about SLV?
Same chart as above, but this is a live version so will change over time.
Silver Related Tickers
This chart shows SLV vs PAAS a silver miner vs SLW Silver Wheaton, a silver trader. SLW has about 30% of the silver market (and SLV 45% or so). Notice how SLW is getting hammered too (and PAAS is down as well, so the miners are not immune to a plunge)
Last Thursday night / Friday morning I’d said:
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…
Now I’d say that the paddy wagon showed up today… Now comes all the running in circles, screaming and shouting…
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).
These graphs let you isolate the “silver bubble” part from the “dollar depreciation” part:
Now compare to silver:
The excess rise of silver vs ALL the others is indicative of the present bubble character.
Here you can see that the other metals and currencies are not justification for the silver bubble on a dollar depreciation basis.
OK, this posting is “MID Pop!”. We need prices on a daily tick chart to drop below the SMA stack, return from the bottom to the 50 day line, then drop away to the downside before we can call this a “silver downtrend” and declare the silver run up “over”. Until then, it’s a “correction” in a bull run higher. IMHO, though, this is the top and the “correction” will result in a “failure to advance” in some month or two at the next attempt higher. So if you enter a short here, be ready to leave it at about $40 / ounce. Then at the next time SLV gets to near these prices, prepare for the “last call time to short” on the way to a “rout”.
So for now it’s ‘correction’ trade rules. “hedge positions” and exit any shorts quickly on a 10 day hourly reversal to the upside. Reduce any long sides on a “hedged long” position and raise cash for a naked short later (at that return to the SMA stack from the bottom). For the truly brave, you likely have another shorting opportunity in a day or two. (Though, frankly, with the size of the volume in that double short ETF, I’d not be surprised if our “whale” just keeps hammering prices down…)
I think it’s pretty clear now why I’m so cautious about metals markets, and especially when they are looking bubbly. When you can “wake up 10% poorer” at the open, you do NOT want to be trying to do a “work out” of that long position this late in the game.
Realize there is nothing to prevent tomorrow from being ANOTHER 10% down at the open.
What I’ve generally seen is a 1 or 2 day pause in these bear raids, they don’t have to keep doing that…