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Silver Trading - Panic, Shouting & Media Hype!
It's all too easy to lose yourself and your position under emotional
strain.
Let's face it, it's hard to think straight when a voice inside your head
is screaming GET ME OUT OF HERE!
And don't think emotional reflexes are the preserve of amateur's only.
Professional Money Managers are certainly not immune to panics,
especially since they are judged on much shorter timeframes and
scrutinized intensely against benchmarks and peers.
That said we find 2 silver trading techniques help us to sit tight with
our positions:
1 - Never bet the Farm.
2 - Remain focused on the big picture at all times.
Regarding rule 1: The winner in investing is the one who stays in the
game the longest. No matter what kind of slam dunk you think you've got,
DON'T go betting the farm, strange things happen under the Sun! The last
thing you want to do is take a loss that takes you out of the game
PERMANENTLY. Size your positions accordingly.
Regarding Rule 2: The best way (we find) to remove emotions from the
picture is to keep an Eagle eye on the charts. And here we find it best
to start with longer dated monthly charts which give us a sense of where
price action has been.
Take our current favourite - Silver or SLV the Silver Bullion ETF:
Silver trading monthly chart still in long-term uptrend
Some noteworthy items:
* SLV etf has been in a bull market since 2001 and the price has risen
by 5X.
* Since 2002 the 3rd and 4th quarters of each year have been strong for
SLV.
* The current correction is similar in magnitude to the early 2004
correction.
* Throughout all gut wrenching corrections, the pr ice has remained
above the blue uptrend line.
* The price is now at significant support in the form of the
abovementioned uptrend line; horizontal support (second blue line) and
50 Month Moving Average (red circle).
Synopsis: Whilst it is impossible to say whether support will hold (we
discuss the fundamentals below) we do think the current level offers an
excellent entry point once we have a low risk setup in our trading
model.
Let's take a closer look:
Silver Trading Weekly Chart
The takeaways from the above chart:
The silver double top in July ($19.17) was difficult to identify because
it was somewhat short of the exuberant $20.73 reached in February.
However the extreme divergence in the RSI (top) and MACD (bottom) was an
early sign that SLV had topped out.
- Once the price dropped below support at $16 (blue line and 50-week
moving average) the chart painted a technical target of around $12
(lower blue line).
- The correction has followed a classic Elliot Wave A-B-C (marked above)
where the magnitude of wave C equals Wave A and once again paints a
target for SLV of $12 (red circle).
- In addition to representing a technical correction target, $12 is
strong support on the monthly chart (figure 1) as well as the August
2007 bottom and 200-Week Moving average.
- We would be amiss if we didn't point out that $12 has not been reached
just yet.
And finally, to round off the picture lets zoom in on the daily chart
for SLV:
Silver Trading Chart, Daily
Noteworthy items here are the 2 gap down events (blue circles) and the
potential double bottom in the RSI (top).
The rationale behind gap events in technical parlance is that markets
HATE a vacuum and usually end up backing and filling the gaps - at least
that has been our experience.
The double bottom on the RSI is a hopeful sign that the downward price
action is decelerating.
Long-Term Fundamentals for Silver
The f undamentals are probably even more bullish now than before the
sell-off (we know that's no consolation). Supply remains slow coming
on-stream as new mines take months and years to get up to full
production.
On the demand side, if you believe (as we do) that Precious Metals (Gold
and Silver) are the antithesis of financial paper assets. And the
institutions who are bastions of those financial assets remain seriously
encumbered, with more to come, then you'd agree that the demand for
Silver will remain robust.
Anecdotally, the Silver Bullion dealers we have spoken to all tell us
that demand for Physical Silver (of which SLV is the ETF) has actually
increased since the sell-off and Silver Rounds and Bars are hard to come
by.
To conclude: Technically we are near a buy zone for SLV. Whilst we may
yet go down to test $12 we are now close enough to the Buy Zone for
probabilities to be skewed in our favour. WE will be looking at SLV at
these prices over the next few weeks for a possible entry!
For more information contact:
Chris Vermeulen
Company: TheGoldAndOilGuy
Email: chris@thegoldandoilguy.com
URL:www.TheGoldAndOilGuy.com
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