Smart Money is Buying Silver

Silver ETF prices are near the lowest level since 2010, and there’s been one of the quickest changes in opinion ever.

Back in May, commercial hedgers (considered the ‘smart money) held the biggest short position since 2010.

Prices slipped 10% since, so hedgers weren’t wrong per say, but the decline was shallower than on similar previous occasions.

Now, only six weeks later, commercial hedgers are much more bullish.

As the silver chart shows, silver is at or near long-term support. The same is true for the iShares Silver ETF (NYSEArca: SLV).

Based on sentiment and long-term support, the odds of a silver rally have increased.

But sentiment extremes in itself are not a reason to buy. At least seasonality and technical analysis have to confirm a buy signal. Perhaps sentiment will even become more extreme (silver COT data released tomorrow).

A more detailed silver analysis, including short-term technicals and silver seasonality, is available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Commercial Traders Abandon Silver at Record Pace

Commercial traders have dropped their silver exposure to the lowest level in years, according to the latest commitment of traders report.

Many commercial traders use futures to hedge existing exposure to silver. The reason many commercial traders have existing exposure is simply because they are ‘in the business’ of mining or buying/selling silver (unfortunately banks also fall into this category).

Many commercial traders could be considered insiders, and thus the ‘smart money.’

Smart investors often follow the smart money.

The chart below shows what the smart is money doing.

It was originally published in the May 25 Profit Radar Report, and plots the price of silver against the net short position of commercial traders (hedgers are generally short to hedge their existing long position).

The smart money is holding a record 62,485 contracts, the highest in years.

The dashed red lines show what effect similar short exposure had on silver prices in the past. It wasn’t good.

The last time silver was able to shrug off the same degree of short bets was early 2011, when the silver bull market was alive and well.

If silver can rally despite this extreme, it may be an indication that the bear market is over.

 

However, seasonality suggests lower prices (full silver seasonaliy chart is available to Profit Radar Report subscribers).

Sentiment and seasonality are two major driving forces. Technicals is the third. The short-term chart actually looks constructive, and would allow for higher prices.

However, if trade breaks down, sentiment and seasonality suggest (much?) further down side.

Continued analysis of the three major driving forces (technicals, sentiment & seasonality) for silver and other asset classes is available via the Profit Radar Report.

The iShares Silver Trust (NYSEArca: SLV) is the easiest way to gain silver exposure. The ProShares UltraShort Silver ETF (NYSEArca: ZSL) is one way to bet on lower silver prices.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Are Gold and Silver Revving Up for Another Leg Down?

Believe it or not, gold is one of the best performing asset classes of 2014, but today’s drop is the biggest this year. Here’s the simplest explanation of today’s drop and why eventual new lows are likely.

Gold hasn’t gone anywhere fast in a few weeks, but is down 20 points today.

According to the financial media, there are various reasons why gold is down:

“Gold falls 2% as dollar climbs on Fed” – Reuters
“Gold lower on stronger U.S. dollar, rebound in stock market” – Forbes
“Gold edges lower as Chinese support fades ahead of holiday” – CNBC
“Gold prices fall on stimulus, demand outlook” Economic Times

Wow, there are many reasons, but no unanimous consent. According to Forbes, gold is down because the S&P 500 and dollar are up. CNBC blames ‘Chinese support,’ whatever that means.

Simple but Effective

The following piece of gold trivia shows that every investor could easily see why gold is down today.

All the information needed is contained in the gold chart below. Can you see why gold is down today?

If you can’t see it, look at the second chart. What a difference just one line makes.

The silver chart paints the same picture, even more compelling.

The Profit Radar Report has been watching the gold and silver trend line for weeks. Initially they acted as a magnet and drew prices higher. Lately, they have acted as resistance and rejected price.

Although I prefer to analyze the purest representation of an asset, it’s noteworthy that the chart for corresponding gold and silver ETFs, the SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: SLV), look similar.

Long-Term Outlook

What about the longer-term outlook for gold and silver?

The December 29 Profit Radar Report featured this longer-term forecast:

Gold prices have steadily declined since November, but we haven’t seen a capitulation sell off yet. Capitulation is generally the last phase of a bear market. It flushes out weak hands. Prices can’t stage a lasting rally as long as weak hands continue to sell every bounce.

Gold sentiment is very bearish (bullish for gold) and prices may bounce here. However, without prior capitulation, any rally is built on a shaky foundation and unlikely to spark a new bull market.

We would like to see a new low near-term resistance is at 1,255 +/-. “

Any gold and silver rally prior to a new multi-year low seems doomed. Nevertheless, the string of higher highs and lower lows has yet to be broken and a close above the highlighted gold and silver trend lines would temporarily extend the current bounce and unlock higher targets.

How low will gold and silver have to go? There is a strong confluence of trend lines (similar to the ones highlighted above) that should act as a magnet for prices and serve as a foundation for a sizeable rally.

Detailed targets for a lasting low are outlined by the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Silver ETF Still Lacks Classic Signs of a Major Low

Precious metals will enter the history books as worst performing sector of 2013. Silver prices are down 60% from their 2011 high. Surprisingly, silver investors seem to be equipped with a cast iron stomach … which may be needed until a bottom is found.

The iShares Silver Trust ETF (NYSEArca: SLV) chart is about as ugly as it gets.

From 2011 to present, silver prices have tumbled some 60%. That’s already more than the S&P 500 (NYSEArca: SPY) lost during the ‘Great Recession.’

The UltraShort Silver ProShares ETF (NYSEArca: ZSL), a leveraged short silver ETF, has doubled since the beginning of the year.

There’s light at the end of the tunnel, but silver investors do not appear to have thrown in the towel yet. Typical markets don’t bottom until the last towel is thrown in, trampled and abandoned.

The chart below plots the price of silver against the tons of silver held by the SLV silver ETF (based on iShares’s data) and SLV trading volume.

Silver investors must have a cast iron stomach. The amount of silver held by SLV seems nearly immune to the bear market.

The 10-day average of SLV trading volume lacks any hint of panic selling.

A sustainable low remains an illusion as long as weak hands continue to hold silver.

Weak hands are ‘on the fence’ investors, unconvinced about silver’s up side, scared of the down side, and on the fence for now. Once the weak hands have capitulated, silver can break free of its bearish shackles.

As subscribers to my Profit Radar Report know, my down side silver target has been below 20 for well over six months.

The down side target is comprised of various support levels, creating a dense support cluster and probably a good buying opportunity (once we get there). Forgive me for keeping the actual target price exclusive to subscribers of the Profit Radar Report.

How about silver’s precious cousin, gold?

A similar analysis of the SPDR Gold Trust gold ETF (NYSEArca: GLD) actually provides more ‘noise’ (in a good way) and texture for a better analysis. The GLD analysis is available here: Tell Tale Sign of a Gold Market Low

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

ETF SPY: iShares Silver Trust (SLV) – Where is Support?

From peak to trough and in a little more than two years, silver has lost 63% of its value. The iShares Silver ETF (SLV) would be an easy avenue for investors to capitalize on a possible powerful counter trend bounce. But where is the kind of support that will serve as a springboard?

The iShares Silver Trust (SLV) is trading lower today than 5 ½ years ago and has lost 63% since its 2011 bubble high. How low can it go?

Some may still be licking their wounds from trying to catch the latest ‘falling knife,’ but it’s always an interesting challenge to see how much farther prices may go.

The chart below shows that silver prices stopped at an interesting trend line intersection today.

Double trend line support like this is known to temporarily halt declines, buoy prices and even lead to sizeable rallies.

More serious support however lies beneath Thursday’s low. The 78.6% Fibonacci retracement of the points gained from the October 2008 low to the April 2011 high is at 16.99.

General support created by a sideways basing pattern (green stripe) in 2010 is also right around 17. Normally the 17 range should be considered strong support and possible spring board for a spirited rally.

However, keep in mind we are talking about the silver ETF, not silver prices. SLV, the silver ETF, is within striking distance of its 78.6% Fibonacci Retracement support. Actual silver prices are still about 8% above its respective 78.6% Fibonacci retracement.

Which one – silver ETF or actual silver prices – will be right? Only time will tell. I base my technical analysis on actual silver prices, because it’s a truer representation of the broad market.

Regardless of your preference, one of the outlined support levels is likely to serve as a springboard for a powerful relief rally.

The Approaching Ultimate Bear Market Signal – Is it as Scary as it Sounds?

A long-term S&P 500 moving average crossover is about to trigger the first sell signal in 73 years. What does this mean for stocks and investors?

Certain events – like the 2008 market crash – are once in a lifetime experiences for investors. Unfortunatly, we might be in for a double whammy.

The S&P 500 (SPY) is about to get hit by the ultimate sell signal, some have dubbed it the “ultimate death cross” (UDC).

A death cross is when the 50 period moving average drops below the 200 period moving average. A golden cross (exactly the opposite) occurs when the 50 moving average moves above the 200 moving average.

We’ve seen various golden and death crosses – 12 since the beginning of 2000 to be exact – based on daily moving averages.

But now the S&P’s 50-month moving average is threatening to fall below the 200-month moving average (the two averages are about 7 points apart). The chart below provides a visual of the SMA crossover.

History of Monthly SMA Crossovers

The 50-month, 200-month crossover is a rare occasion, which means that the sample size to base any conclusions on is small.

The chart below shows the S&P since 1887 (datasource: Robert Shiller).

The last monthly 50/200 SMA crossover was 66 years ago in April 1946. This was a bullish crossover or golden cross and the S&P has rallied from 19 points to as high as 1,576 since. Not bad for a long-term buy signal.

The third chart zooms in on 1915 – 1946, the time frame that hosts the last cluster of monthly SMA crossovers.

The most recent UDC triggered in August 1939 (73 years ago), but was quickly reversed by a golden cross six months later.

The last clean UDC happened May 1934. It preceded a 10% decline followed by a 100% rally.

A golden cross in 1925 correctly foreshadowed the 300+% bull market ahead of the Great Depression.

From 1915 – 1925 the 50 and 200-month SMA traded very close to each other with no significant signals.

What Does it Mean?

Like any SMA crossover, the UDC is a lagging indicator. Looking at the trajectory of the 50-month SMA, the UDC may not trigger until late 2012.

The great bull market of the 20th century topped in 2007. The UDC sell signal will be about five years late but may come just in time to warn us of the second bear market leg.

Regardless of its spotty track record, the UDC emphasizes that we’re living in unique times and its long-term message agrees with the big picture bearish outlook painted by my indicators.