Saturday, September 24, 2011

Trade Update: SLV

Well there it is read em and weep. The takedown of silver last week could not have been any more ruthless if it was done with a straight razor in an ally. We went long on SLV at $40 share and I decided then not to put in stops. That was back in August 19 and I did not want to get whipsawed in the range of support between $38 and $40.

Not that the stops would have done much good any way. Just take a look at those gaps. A quick glance at the 10 day chart in the fifteen minute time frame below will help clear things up.

You can see the breakdown beneath $38. There was a two dollar gap on Thursday followed by another two dollar gap on Friday morning. By the time you would've had a chance to sell most of the selling was probably done.

So, I guess the question is was that indeed a washout. To get a clue go back to the 52-week chart up top and take a look at the volume. Notice that the volume was over 300 million shares during the collapse in May and last week's volume was barely a third of that. I think that most of the selling is done but we will see SLV retreat all the way to $25 first. On the other hand I think that once all of that selling is done the recovery from there will be swift.

Now there is the spot market and there is the real world market. And the spot market is becoming further and further disconnected from the real market as I have been saying for a long time. But now comes evidence from Ted Anderson who says he cannot find physical silver at $30 an ounce. That's because people in the real world are still trying to collect the physical metal as opposed to the options traders on the Comex.

If you want to add to SLV here I don't think it would be a bad idea. Just so long as you're able to withstand the decline to $25 if it comes. On the other hand you could open up new positions in PSLV which we will talk about at another post.

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