Sunday, January 30, 2011

Trade Update: SLV

What does a perfect turn around look like? First stocks usually reverse at 1/3, or 1/2 or 2/3 of their prior moves. Now imagine a stock falling by say 1/3 of it's prior move and in our perfect world all of the daily candles are red on overwhelmingly powerful selling volume. Then on one magical day the shares close slightly up from the day before and the volume goes green and the momentum turns up as well. Lets pretend that weeks and months from now the mainstream TV pundits point (too late as always) to this day as the day the stock turned around. This is an easy exercise in hindsight, but finding a turnaround when there is still time to do something about it is something else. Still let's compare the chart of SLV with our fantasy land.

You can't miss the double top that formed at $30 last month and this. From there the shares have traded down to $28 zone and then went nearly sideways until that weak support was broken and the price fell to $26 per share. Now look at the last two candles, a big red indicating a down day, followed by a huge white one indicating a larger up day. Is this the pair the pundits will be pointing to in the future as the turnaround-all for SLV? Believe me I have no idea and if I were listening to those ass holes I wouldn't have this blog in the first place. But it precisely those twin data points along with the stochastic turning up from the oversold zone which convinced us to go long by a 1/2 position at $27.10. The reason we took only 1/2 a position is because the $27.10 buying price is a nose bleed away from the 200 day moving average (dma) at $21.66. These two WILL converge sooner or latter. Which is going? If I knew the answer to that I would have taken a full position or none at all. So, we got our feet wet and now we wait for more info.

It is important to remember that SLV is paper not silver and as such we trade it technically and pay no attention to the fundamentals. If the market obeyed the fundamentals SLV would be trading in the triple digits by now and technical analysis would not be necessary. This fact demonstrates the superiority of technical analysis over fundamental analysis for trading paper. Even when there is a well known global physical sliver shortage the price of paper the represents it i.e. SLV goes down.

The difference between trading paper and physical silver is stark. I will always trade the paper for paper, but never trade silver for paper. That is I will not hesitate to sell SLV now in the hopes of picking it back up latter at a better price because physical shortages have no more affect on the paper markets than any other fundamentals. But if you are incline to selling physical silver hoping to grab it again at a lower price the reality is that you will never get it back. The physical shortage means that there isn't enough to go around. Silver is so valuable now and for the foreseeable future that you can't get any, but you can always get as much SLV as there is paper money to buy it with.

1 comment:

Anonymous said...

good but i want sugeestion on trading too long to read i dont care about the pundits get to the point soon next time thx