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Silver Market Update


Staying with the 3-year chart a very important point to note is the current unbeatable risk/reward ratio. With the price hard down on support after a long period of retreat, those buying here have the opportunity to get in right at the start of a major uptrend if it does start higher from here, and can guard against serious loss by the simple expedient of placing close stops beneath the support. If this is obvious to us, then you can bet that Big Money is aware of it, and by Big Money we mean those with sufficient clout to muscle the market around to their own advantage. So what might they do here to make even more money? - crash the support, and run the little guy out of his remaining positions before a dramatic reversal back above the support leading to the major uptrend starting that we are anticipating. This is why it is so important to be ready to jump back in if, after failure of the support, the price then reverses back above it again, accepting the modest whipsaw loss as the possible cost of this strategy. Given the unusually bullish COTs and sentiment indicators for silver, it does not look likely that failure of the support would lead to more than a brief plunge that is quickly reversed, the only exception to this being if we see a 2008 style market wide total meltdown, and while this of course possible it does not look likely over the short to medium-term. The Accum-Distrib line shown at the top of the chart looks remarkably positive and is in itself a good omen, although we know from past experience that this indicator cannot always be relied upon. The current very low volume, about the lowest since the 2010 and 2011 Christmas holidays, is another positive sign. A new uptrend in silver will really gain traction and accelerate once the price succeeds in breaking above the red downtrend line shown on the chart.


From what is set out above it will be clear to more sophisticated traders that we now have a near perfect setup for playing it both ways - a raft of straddles (Calls and Puts with the same strike price) or "strangles" (Calls and Puts whose strikes are both out of the money, and which are thus cheap) - and the current low volatility, if it persists into tomorrow, will mean you can get these on board cheaply. If the support fails and the price plunges you quickly ditch the Puts for a whacking great profit and hang on to the Calls. If, as we suspect, the breakdown is the result of Big Money running the little guy out of his positions by triggering his stops, then we can look forward to a rapid reversal back above the support enabling the trader to at least recoup the cost of the Calls and very possibly make a profit on them too. If the new uptrend develops from here, then you simply hang on to the Calls and write off the Puts, and you should end up with big gains.

Chart courtesy of www.sentimentrader.com


The silver public opinion chart shown below is such a reliable barometer of the foolishness of most silver speculators and traders that it is almost comical. Why don't they refer to it? - just too stupid, I guess. It's a good thing they don't because it means that people like us can use it to our advantage. As we can see the "great unwashed" have a low opinion of silver at this time, and that has to be bullish.

Chart courtesy of www.sentimentrader.com


Finally, the long-term 15-year chart of silver relative to gold is interesting as it shows several interesting things. The first is that during the early days of the Precious Metals bullmarket silver underperformed gold, and it got treated as almost worthless trash during the 2008 market crash. Then, after a period of recovery, it really went nuts in a big way for the first time ever in late 2010 and early 2011, with silver speculators becoming totally manic before being overcome by blind panic and exiting their positions just as fast or even faster. Now silver bugs are licking their wounds and feeling decidedly timid after the severe kicking they have received since May of last year - it's kind of sad really considering how attractive silver is now compared to those earlier heady days - but we can surely count on them getting interested again - once the new uptrend has become well established.

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