It never ceases to amaze me how there are so many so called "professionals" out there who are, quite frankly, morons. But the cold hard truth is you need ignorant, simple, unimaginative and emotional people to exploit in this game otherwise making money in this game would be a lot more difficult. Call me an arrogant prick if you want but you know I'm right. Can you imagine a world where everyone was either Warren Buffet or John Templeton? How could you ever make money? So folks, the next time you are frustrated that a position you have isn't at the price where it deserves to be, look on the bright side and be thankful that few can see the bargain you see which has allow you the opportunity to make a big score....that's assuming of course that you'll be proven right in time and have the patience and conviction to capitalize.
On to the next news item...the dip in commodities triggered largely in part due to higher margin requirement for traders of silver futures. The question on everyone's mind is whether the "bubble" in silver has popped and whether commodities in general have peaked. Well, I gotta say that this selloff in commodities look more like a correction rather than a major cycle peak. Regarding silver specifically, the rise it had prior to this sell off did indeed resemble a bubble with it's parabolic assent. Just prior to the sell off I was contemplating buying Janurary puts on SLV for a trade. I figured whether it's just a bull market correction or a bubble popping crash leading to a new bear market, the odds of a sharp drop in silver are high. But being on vacation and in addition to wanting to see more topping action, I didn't pull the trigger so I'm kicking myself a little but not much. The question remains, is silver in a bubble and did it just burst? Check out these points from an article I read which discussed conditions in the silver market just before this latest drop.
Wow, these are some eye popping stats aren't they? There is very strong evidence to support that a major silver collapse is immanent. But you know what? Despite all these points, I saw just as many traders on the message boards bearish on silver as I did bullish just prior to the collapse which suggests we are seeing a correction and not the end of the silver bull/bubble. Now perhaps these bearish traders were just playing for pullback which would negate any bullish contrarian implications of these bearish traders. Price action however, does suggest the drop in silver so far looks more like a correction than a bull market peak. The hallmark of any corrections in a bull trend is a short but sharp drop in the price after just making a fresh high without any topping behavior prior to it. I have found that this type of drop is the difference between a correction in a bull trend vs. the first down leg of a new bear trends which starts with a crash. When you see a crash typically, you will see some sort of topping behavior that lasts at least a couple of weeks. If I'm wrong about this and silver is the midst of a crash and new bear trend, we should see the price drop at least 40% from the peak within the next 3 weeks...that would be consistent with the price action of other bubbles bursting. So far we've seen about a 30%.
The playbook for a bubble bursting aftermath is a 40-60% initial decline followed by some sort of a counter trend bear market rally of 35-50%. So, if you miss out on the crash of a bubble, wait for that counter trend rally which could take several months to play out.
From a fundamental perspective, the requirement of higher margin requirement for silver futures which albeit a negative, doesn't strike me as a bull market killer for silver because it doesn't change the underlying psychological drivers for silver. Silver has been driven upwards by the notion of it being an anti US dollar play coupled with the notion that it's in short supply...but the former factor is more important, in my opinion. Higher margin requirements don't change either of these beliefs.
The bottom line regarding silver is this....let it play out. Market action should tell us whether the party is over or just taking an intermission. As frothy and parabolic as silver has been, I have to honestly say that I believe this is just a correction....we'll just see what happens.
On to the next news item...the dip in commodities triggered largely in part due to higher margin requirement for traders of silver futures. The question on everyone's mind is whether the "bubble" in silver has popped and whether commodities in general have peaked. Well, I gotta say that this selloff in commodities look more like a correction rather than a major cycle peak. Regarding silver specifically, the rise it had prior to this sell off did indeed resemble a bubble with it's parabolic assent. Just prior to the sell off I was contemplating buying Janurary puts on SLV for a trade. I figured whether it's just a bull market correction or a bubble popping crash leading to a new bear market, the odds of a sharp drop in silver are high. But being on vacation and in addition to wanting to see more topping action, I didn't pull the trigger so I'm kicking myself a little but not much. The question remains, is silver in a bubble and did it just burst? Check out these points from an article I read which discussed conditions in the silver market just before this latest drop.
3. Take the Sprott fund, which is in such hot demand that buyers this week were paying $1.22 for every dollar's worth of silver in the portfolio.
4. Silver is trading 82.17% above its 252 MA. This is the 99.5% percentile going back to 1920. The other times were near the 1974 and 1980 tops.
5. Silver is up 412% in the last 625 trading days. This is the 99.75% percentile going back to 1920. All 59 times it has gone that high in that time, silver has dropped at least 85.61%.
6. Silver is trading 15.17% above its 21 MA. This is in the 99.22% percentile going back to 1920. The average drawdown from when it reaches that high is down 64.68%.
7. The 252 MA of gold/silver ratio is 70.21% above the current reading which is in the 99.88% perceile going back to 1920. The indicator’s all time readings occurred in 1933/1934 when FDR changed the price of gold overnight. Since January 1934, the highest this indicator got to was Jan 10, 1980 which was 11 calendar days before the silver peak. The 1980 reading was broken on Wednesday April 20, 2011.
8. Primary silver mine cash costs remained relatively flat year-on-year, falling by less than 1 percent to $5.27/oz. from a revised $5.29/oz. in 2009.
9. Silver performance vs. stocks over a 10 year period is in the 99.7% percentile. The only year it was higher was 1979. Silver peaked on Jan 31, 1980.
Wow, these are some eye popping stats aren't they? There is very strong evidence to support that a major silver collapse is immanent. But you know what? Despite all these points, I saw just as many traders on the message boards bearish on silver as I did bullish just prior to the collapse which suggests we are seeing a correction and not the end of the silver bull/bubble. Now perhaps these bearish traders were just playing for pullback which would negate any bullish contrarian implications of these bearish traders. Price action however, does suggest the drop in silver so far looks more like a correction than a bull market peak. The hallmark of any corrections in a bull trend is a short but sharp drop in the price after just making a fresh high without any topping behavior prior to it. I have found that this type of drop is the difference between a correction in a bull trend vs. the first down leg of a new bear trends which starts with a crash. When you see a crash typically, you will see some sort of topping behavior that lasts at least a couple of weeks. If I'm wrong about this and silver is the midst of a crash and new bear trend, we should see the price drop at least 40% from the peak within the next 3 weeks...that would be consistent with the price action of other bubbles bursting. So far we've seen about a 30%.
The playbook for a bubble bursting aftermath is a 40-60% initial decline followed by some sort of a counter trend bear market rally of 35-50%. So, if you miss out on the crash of a bubble, wait for that counter trend rally which could take several months to play out.
From a fundamental perspective, the requirement of higher margin requirement for silver futures which albeit a negative, doesn't strike me as a bull market killer for silver because it doesn't change the underlying psychological drivers for silver. Silver has been driven upwards by the notion of it being an anti US dollar play coupled with the notion that it's in short supply...but the former factor is more important, in my opinion. Higher margin requirements don't change either of these beliefs.
The bottom line regarding silver is this....let it play out. Market action should tell us whether the party is over or just taking an intermission. As frothy and parabolic as silver has been, I have to honestly say that I believe this is just a correction....we'll just see what happens.
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