I was about a month premature and about 19% in missed gains when I flagged the potential start of a parabolic move in silver. Or perhaps my definition of a parabolic move should have been more expansive. Either way, silver’s behavior over the past four trading days definitely has taken on the tipsy look of a parabolic move. I am sure silver is on “everyone’s” radar if it was not already before Tuesday.
A parabolic move is important to understand because it typically marks the end, not the beginning, of a bullish run. At the end of the move, buyers finally exhaust themselves as the fever or panic to buy finally runs its course. In many cases, this is also the moment where the last shorts finally cut their losses and close out positions.
I am using SLV (iShares Silver Trust ETF) as a proxy for silver because it shows the tremendous surge in volume that marks a climactic topping pattern (I ran through several examples of others in March of this year). The chart below shows silver gapping up on higher than average buying volume the day after the Fed’s announcement on quantitative easing. The buying volume persisted and pushed SLV further and further away from the upper-Bollinger Band (BB). At Tuesday’s high, SLV was stretched even further away from the upper-BB, rounding out the parabola before the selling finally began. With the close below Monday’s low, SLV has punched in another bearish engulfing pattern. Today’s fade is arguably more significant (and dramatic) than the similar, but smaller, pattern in early October.
(Click for a larger view)
The intra-day view of SLV confirms that volume picked up AFTER the high of the day. This signifies that sellers won the day in price and volume.
Source: Yahoo!Finance
Silver’s latest attempt at a climactic top has not yet been confirmed with follow-through selling, so I am calling it “tipsy” for now. My big mistake last month was not waiting for confirmation of the topping pattern before unloading my last positions in silver, especially given the fundamentals for silver (and gold) remained extremely strong given the market was still pricing in QE. I recommended (or reminded) in May that traders and investors making anti-dollar bets add silver to any holdings in gold. My idea was that silver was lagging gold and was due to catch up. After a bumpy start, silver finally picked up momentum over gold in July. Note that silver is now trading at the same ratio to gold as it did in early to mid-2008. I strongly suspect this event marks, for now, the end of silver’s out-performance versus gold.
Source: Stockcharts.com
Silver even played catch-up to the U.S. dollar. Remarkably, this latest run peaked at exactly the same ratio (1.7) as the last run which ended in early 2008 (measuring from the base where the last phase of the move started). Yet one more sign that silver is due for a rest here.
Source: stockcharts.com
Gold, as represented by GLD (SPDR Gold Shares), also printed a topping pattern but nearly as dramatic as silver’s. After seeing silver’s strained stretch in the morning, I decided to relinquish my position in Goldcorp (GG) – my last gold/silver play. Suddenly, I feel very naked.
With the dollar looking strong for a third straight day, the prospects for a sustained relief rally are looming ever larger. If the dollar breaks through the immediate resistance formed in late October, the all-important 200-day moving average (DMA) could quickly come into play after a tussle with the 50DMA.
*All charts created using TeleChart (unless otherwise noted):
All things considered, the short-term risk/reward for silver and gold (and other anti-dollar bets) is about as poor as I have seen it in a long time. Assuming today’s selling gets confirmation, I will be looking for a sustained move downward. However, as long as the Federal Reserve is printing money through quantitative easing and so much of the developed world hopes to increase exports through devalued currencies, I will be looking for the next spot to buy and accumulate gold and silver (if the dollar makes fresh lows from here, I will start nibbling again on gold and silver right away). If gold and silver continue their strong upward moves, either sooner or later, it will be interesting to see whether the market will force the Federal Reserve to respond in some way (most likely with jawboning first).
Until then, be careful out there!
Full disclosure: no positions
It truly sounds like you are pissed because silver and gold or out of control. You a very strong on your message at the beginning saying This is is and I me almighty is predicting no telling every one that the end of the run is over. You even say you may have exited just a bit too soon but still it’s time to exit. At the very end you have you doubts and OH if I look at t what is really going on the the FEDs and may be the world instead of just looking at my charts I might jump back in. I hope that if you are wrong you writ an article that says your sorry. sure you may save yourself money by jumping out and in, but then again you jumped out to soon. But please don’t write article as if you know everything, tone it down a tell people what to be caution about and let them hash out the information. This kind of writing makes people not trust anything they read!!!
It truly sounds like you are pissed because silver and gold are out of control. You are very strong on your message at the beginning saying this is it and I, me, almighty is predicting, no I am telling everyone that the end of the run is over. You even say you may have exited just a bit too soon but still it’s time to exit. At the very end you have your doubts and OH if I look at what is really going on with the FEDs and maybe the world instead of just looking at my charts I might have to jump back in. I hope that “if” you are wrong you write an article that says your sorry. Sure you may save yourself money by jumping out and in, but then again you jumped out to soon, but the common person could panic and lose a lot more. Please don’t write articles as if you know everything, tone it down a tell people what to be caution about and let them hash out the information. This kind of writing makes people not trust anything they read!!!
I am not sure I quite understand the problem. The flow was deliberate. I explained the case for why this looks like a parabolic move. I make sure the reader knows enough of my investing history with silver (and gold) to know that I have been bullish. I admit to past mistakes as well as correct calls to give proper perspective on what I am saying. I even admit I am a bit uncomfortable having holding no gold or silver now even though the risk/reward tells me to sell here. I end by explaining my strategy going forward if I end up right and what I will do if I end up wrong. I focus on my actions and what I will do here. It is always the readers decision what s/he wants to do with the info and the opinion.
I am not telling the reader I am almighty, and I never claim to have a crystal ball. But given my many articles on this topic over the years, I would be very remiss not to write about my opinions (and my trades) on such a remarkable day.
Thanks, I thought it was pleasant to read someone write about their investment without bragging how flawlessly they timed their trades. Also the vacillating certaintly about one’s decisions to get in again or stay out – particularly when silver/gold have run up recently – is familiar to me.
Dr D, I have never posted on your site althugh it is a MUST read for me daily. You are a human, and thus fallible, but your track record in previous posts speaks for itself. Disregard Stephan as he is just one of the many people who lurk about waiting to pounce as they are chuck-full of negativity and have to tear others down to make themselves feel better. Thanks for your site and your observations. I have been having fun trading off your FSLR observtions all year.
Thanks for the comments “Frit”!
Thanks, Toby. I am especially pleased to hear someone is making money off my opinions! You know, a lot of times writing a blog is like tossing bottles into the ocean…