Wednesday, April 27, 2011

Trade Update: SLV

Wow! Up $2.97, that is the greatest one day surge for SLV that I can think of. But that is not all I see. I also see a double top, at least for now. Look at the above intar-day chart in the 15 minute time period and you will see it too. I am not calling a top in the SLV, but I am warning of a possible big retracement. Most things that go up parabolic, come back in a big way before continuing. And volatility is a signature of the end of a run.

On Monday April 25 when the SLV opened at $47.00 spot silver opened at $48.00 raced promptly to within pennies of $50.00 and then closed at $45.06. Yesterday it traded sideways within a one dollar range and today it busted out for a nearly three dollar move. That is volatile for this ETF. On the other hand both silver and the SLV closed higher today than they did on Monday and the gap between the ETF and silver prices has narrowed from four dollars to an acceptable $00.77.

Is this the end of this SLV run? I don't know. A lot depends on the US dollar and the news is all bullish for silver on that front. For holders of the SLV we are in the unusual position of having both long and short risks, due to JP Morgan's monster butt naked short positions on silver. If those contract are tied to the SLV, then the ETF could stop trading and be liquidated. It will be a certainty if silver breaks $50 per ounce and shows no sign of restraint. Let's worry about that if and when we need to. Right now I'd like to concentrate on the downside risks.

Take a look at the daily chart now. You can see the monster volume especially this week. The first sign of a turn around will be that volume thinning out. Notice also that there is no semblance of support until at least $35.00 and nothing significant until $25.00. Now I am not saying that it will fall to there, but if it does it would represent a fantastic buying opportunity for either the ETF or real silver. But only if you got out 20 points higher. Keep your stops at $42.79.

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