End of the Bug-Bear? (DIA,SLV)

For the last three and a half months the precious metals have been rallying.  On and off, wheeling and rocking, the whole sector, including the miners, have been waging a fierce battle to conquer their respective down-trending moving averages and recapture the glory they lost in 2011.

 

And everyone has been pitching in with the effort…

 

Almost.

 

Until yesterday, silver bullion was the lone holdout, the last bastion of stubborn-assed bearishness in a group that almost without exception was hailing a new era of freewheeling profits for the gold buggerers and hard currency advocates the world over.

Silver rising

So what changed?  What made the silver market go ‘pop’ like we don’t ever remember seeing it do in the last 20 years?

 

Well, it could’ve been dollar weakness, which we saw yesterday to some degree – a loss, yes, but nothing out of the ordinary, and certainly nothing that would explain the extraordinary levitation of the move in silver.

 

There was something more at work here.

 

Perhaps it was tied to revelations from Deutsche Bank (NYSE:DB), that traders there had played a role in rigging the silver market for years now – and were threatening to name names of other major players in that crooked enterprise?

 

Maybe it was tied to information regarding massive Chinese demand for the metal over the last 48 hours (a bit of news that has appeared with varying regularity over the years and that certainly wouldn’t account for the utterly spastic nature of Tuesday’s rise)?

What could it be

Well, let’s first have a look at the chart of the iShares Silver Trust (NYSE:SLV), particularly the last two weeks trade at the far right.

slv technical

The picture painted here is nothing short of astounding.  Two huge gaps higher in what’s turning into an asymptotic moon launch (red arrows)!  And most important from a technical point of view, the long term moving average (black arrow) has finally been bested!

 

Again, technically speaking, this is an extraordinarily positive event for precious metals bulls.  Until now, both gold proxy GLD and the miners, as represented by GDX, have been trending above their long term moving averages for months.  Silver’s delay in getting there was a prick in their eyes and a thorn in their sides.  Like a zika mosquito that flew up their nose and made their brains hemorrhage, silver’s behavior –until recently – confounded them completely.

 

The Emperor has no Head

statue

And then this.

 

The flight of April 19th, just two days ago, was in itself a 4.5% leap.  And just seven trading sessions prior, another gap higher and another 4% bagged.

 

What in the world…

 

And the wildest part is the stock is not yet overbought!  A look at the RSI indication (in green) shows it could continue for several more days in this vein before technicians start to mess with sell orders.

 

Holy Poison Chicken Plague, Batman!

 

The upshot of it all is that we have to once again reevaluate our position vis-à-vis the precious metals.

 

It’s not the first time in this five year PM bear market that we’ve been forced to do a double take.  And it may not be the last.  But we do have to give the guy a fair shake.  And that means looking coldly at the charts and figuring out which is the best way to make a buck off them.

 

That means we acknowledge –

 

  1. The volume surge of the last two months, that’s carried all the major stocks in the sector higher (in blue),
  2. RSI and MACD indicators, both of which are comfortably trending above their midway waterlines (in green), and
  3. The turn higher of three of the four salient moving averages (all but the long term, yellow).

 

We note, too, that there’s now a reverse head and shoulders bottom in place with a neckline count that could bring SLV as high as $17.50 before next resistance is hit.  That’s a move of another 8% from current levels, and it could easily come sometime in the next week.

 

But what about our question, Matty? 

What caused the absolutely vulgar thwacka-thwacka move higher?

 

And for that, dear friends, we have to turn to the weekly chart.  Because there, it all falls very neatly into place.

 

Have a look for yourself.

slv weekly

Feast your virgin beadies on that one, NUN!

 

A work of art, no?

 

The weekly chart is unequivocal – after three years of submarine action, the MACD indicator has just this week surfaced above her midway waterline in what could be viewed as an historic turning point for the metal.

 

Tuesday’s action was very simply the culmination of many years of patient waiting on the part of precious metals technicians who abruptly jumped at the technical trigger that this week’s action afforded them.

 

Nothing more.

 

Dangers?

 

We don’t see enough volume here to our liking, certainly nothing like we saw at the top of the silver bubble five years ago.  But that doesn’t mean we have further to slide before we do hit bottom, just that we’d feel more secure if it were there.

 

We’re going to trade the precious metals, nonetheless, but first, we have to tend to one trade that needs work.

 

We opened it on the 7th of April, just two weeks ago.  The letter was called Smoke ‘em if you Gottem, and there we bought May DIA CALLs and sold nearer-term DIA CALLs in equal numbers.  Unfortunately, the market didn’t cooperate, so we’re rolling out the near term CALLs as follows.

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We’re buying back ten (10) DIA April 22nd 180 CALLs for $1.01 each, and selling ten (10) DIA May 13th 182 CALLs for $1.16 each.  Total credit on the rollout is $1.50.

 

And we buy some time.

As for silver…?

 

As for silver, we’re selling spreads.  The top is in for SLV for the short term.

 

Options Trader Elite recommends you 1) roll out your DIA CALLs as specified above, and 2) sell ten (10) SLV June 17.50 CALLs for $0.30 each and buy ten (10) SLV June 19 CALLs for $0.14 for a total credit of $1.60.

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Many happy returns,

 

Matt McAbby

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