Silver may be near another top

Discussion in 'Metal Futures' started by Ghost of Cutten, May 10, 2011.

  1. Silver is likely now in a bearish medium-term/long-term trend. As such, significant rallies to resistance levels should be used as shorting or put-buying opportunities (standard bear trend trading tactics). With a 2 day rally from $33 to 38.6, we are probably coming close in time to another shorting opportunity.

    IMO the upside in silver is likely to be to $39-43. Potential downside is new lows, possibly much lower lows (e.g. mid 20s, or even $20). Thus you are risking 10-15% for a 25-50% gain, depending on entry and exit points.

    Due to the sharp nature of bear market rallies, I would either scale in to shorts, or start with bearish options bets and only add outright shorts as the price exceeds $40. I would not put on an entire short position at $39. If I am right, the price should not really go above $45 in any significant or sustained way, and should in fact roll over and turn back lower fairly soon, within a week or two.

    A further point is that IV is still elevated and likely to come in further as volatility declines along with speculative participation. I therefore don't recommend buying and holding outright put positions, time decay and vol crush could cause problems. Selling calls or bull call spreads may help to offset the time decay in any long put positions you put on.
     
  2. Tsing Tao

    Tsing Tao

    you were pretty damned accurate the last time around. it will be interesting to see how you fare this round. good luck, cutten.
     
  3. Larson

    Larson Guest

    Dollar rally to get traction? I would suspect if silver drops, other commodities will follow.
     
  4. It appears the silver crash was due to the margin increase, no change in the fundamentals, so you should be very careful with your analysis as new highs can be realized as soon as there is an uptick in inflation.
     
  5. Larson

    Larson Guest


    Look at the thread below you. There are two or three shills who argue the margin increase had nothing to do with it. Hilarious.
     
  6. SI 4 day high AH.

    I suppose this is still the dead cat bounce phenomenon.

    Right now I am don't have any feel for Silver.

    Summary of how I perceived/anticipated SLV in the last month:
    Overbought in early Apr - pretty clear - checked
    Unexpected parabolic runup - unexpected but understandable given its history - checked
    Sharp selloff - totally expected - checked
    Oversold bounce - totally expected with the gap on daily as a good target

    After gap fill - muddy waters - not checked

    what do you guys look at at this juncture?
     
  7. given that the waters are muddy and the implied volatility is high i chose to sell straddles incrementally (while buying wings for protection). it is possible (but i don't know) that this is really the best course of action right now because directional trades are ambiguous at best.
     
  8. Hey shortie - I think we either head rapidly back to the lows and break lower, or we have a kind of choppy, frustrating trading range with one or two false breakouts for a while, before eventually going lower.

    For that reason, I'd avoid the short-dated options I used recently, and go for either outright shorts, or long-dated options (e.g. December $30 or $35 puts). Option spreads may be better, since I think IV may get hammered (vol normally falls in commodity bear markets).

    Another tactic is long gold/short silver as a spread trade.

    Assuming silver doesn't just shoot up to 45 (in which case I'm probably wrong), the important/tricky part will be if silver falls to say 30-35 - do you stay short, or book profits because of the potential trading range and retest of the $40 level? I would say, for that reason, you want to reduce outright exposure if we get down to $30-35, and only have on long December puts, at a size you are comfortable with. Then, any retest of $40 will be fine, you can then short outright again. And if the market just collapses in the first place with no retest, your puts will pay off nicely.

    I have on outright shorts, some gold/silver spread, and am looking at what options plays to put on. I'm ready for a bit of heat (maybe to $42-43) and may be a bit early here, but it's worth putting on a normal-size position IMO.
     
  9. m22au

    m22au

    For all the stories about the decline from the high 49s to the low of 33.04 on Friday, silver rose over 19% to its high of 39.47 earlier today, in less than 3 trading days.

    While this 19% rise should be viewed in the light of the massive decline last week, I think the next 5% will be down rather than up.

    As I post this, silver has fallen below $38.90 again and the $39.47 may prove to be a tough barrier for a while yet.

    I also note that the $39.47 level is only 10 cents less than the high from last Thursday.
     
  10. SLV did not hit $40 and today it is down. The second wave of buyers could not keep the rally after the the big drop. If SLV cannot hit $40 today, it will keep dropping to $30 and below.
     
    #10     May 11, 2011