What's up with Silver?

The SIlver ETF, symbol SLV, is at a critical juncture. It is very close to its support level and 200 day MA as well as below its 50 day MA. I have posted 2 charts of SLV, one is a 6 month chart and the other is a 3 year chart. I have drawn support levels and importantly on the 3 year chart it is about to break below the uptrend line, even though today it was up slightly. I believe as the market goes lower so will Silver. Silver is not Gold and that is important and while they track over time, when SLV starts to decline, it declines much more rapidly than Gold. Therefore my play here is to buy the ETF Ultra short of Silver, symbol ZSL as it is a double the movement of Silver and in the opposite direction. If Silver goes up 1%, ZSL goes down 2% and if Silver goes down 1%, ZSL goes up 2%. This is something worth watching and tracking into the Fall.

Market outlook for July 20th: Rainy with Clouds

Well after the bell yesterday, IBM reported its earnings as did Texas Instruments. Both disappointed on top line Revenue expectations and that has set the stage for today's market action. Futures are down and Europe is down this morning. Also out this morning was Housing Starts and Building Permits. The news there was mixed. Housing starts came in at 549K for June compared to an expectation of 575K, which was worse than expected, and Building Permits came in at 586K compared to the expectation of 572K, which was better news than expected. That rallied the Futures a bit so they weren't as negative before the news came out Dow Futures were down about 100 before the Housing data, but after the data they came in at down only 75. However, currently the Dow Futures have slipped back down 93.

Expect today to show another leg down on this slowly unwinding market. I will post Updates here during the day today. So if you have read this once be sure to come back and see the Updates and commentary.

Also, news on Goldman Sachs missing expectations on their numbers also is causing some market turmoil. It is clear that the top line Revenue Growth is not there and the only way companies are making their earnings is but cutting costs. It isn't going to get better any time soon according to Pimco's Mohamed El-Erian, CEO and Co CIO who was on CNBC this morning.

I will also post today something on Silver and ZSL and that there is about to be a significant break below key supports on Silver and that this can be payed by buying ZSL or adding to previous positions. Look for tha post later this morning.

UPDATE: 9:45am PST

AS you can see from the above chart we started down about 125 for the Dow but have steadily risen up in spite of the news. Well the Dow formed a "W" pattern with the slant pointing down. We therefore should go lower from below the lowest leg of the "W" pattern. That would take us to Dow down over 100 again today.

Stock market outlook: Protecting your Assets

As shown above, the 2 year Dow chart shows that we have made lower lows now 3 times as signified by the Blue lines. Also shown is the recent "W" pattern which is signified by the Red line. Notice that it is slanting down. This means that most likely we are in for another lower low, which should easily go below the 3rd Blue line. This pattern of lower lows and lower highs should continue through the Fall and into 2011 with the economy facing the real prospect of Deflation and no job growth.

What to do, what to do in the face of these problems? I can't tell you what to do, but I can tell you what I am doing. I am paying attention to all the data I can and look at my own assets daily as to where they are and how best I can take advantage of the knowledge I have acquired and the analysis I have done. For example, Treasury two-year note yields fell to a record low as reports showed that consumer confidence plunged to the lowest level in a year and retail sales declined, heightening concern the economic recovery is stalling. These all are consistent with a stalled economy and increasing the risk to us.

Yields on 10-year notes traded near a 14-month low this week after minutes of the Federal Reserve’s June meeting showed policy makers noted that risks to the recovery increased. Housing starts and sales of existing homes declined last month, reports next week are forecast to show. So in face of this information it is almost impossible for the stock market to go up. It will go down. So being long and staying in stocks is foolish, unless you are considerably hedged to the down side. I have sold many of my stock positions but have several still that I know will not drop much with a market retreat and will have a minimum effect on my total portfolio. I have shares the ETF Ultra Short of the Russell 2000 Index, symbol TZA. This is a Triple play, meaning that for every 1% the Russell 2000 goes down, TZA goes up 3%. I also have TZA Option Calls for October and for March. I have traded these twice so far and the shares I currently own are all from the profit I already have made so there is no chance to even lose my original investment. If these rise significantly, as I expect they will, I can more than double my investment in them.

I also own shares of the Banking Index ETF Ultra Short, symbol FAZ. These I expect to also rise in value. I have also purchased some other Put Options on stocks I know will drop with the market drop. I also own ZSL, which is an ETF Ultra Short on Silver. So I am a very defensive mode at this time and plan to become even more defensive going forward. Much will depend on the rate of deceleration of market Indexes. This is unfolding at a slow rate currently but the pace will increase sharply one of these days in the next month. pay attention to your portfolio. Talk to your Financial Advisor regularly if you are worried. Make sure you can sleep well at night as things are going to be very scary. The Fall is coming faster than you think and you remember what the markets do in September and October. TAKING ACTION THEN WILL BE TOO LATE.

Market outlook: Correction ahead amid turbulence during Greek debt crisis

I had a close friend ask me my opinion of the markets last night. I gave it to him but thought I would use the opportunity and show a chart on my Blog. In the 5 year chart above of the Nikkei 225 versus the Dow, you will notice that the Dow appears ahead of itself compared to the Nikkei. The Dow has been behind the Dow for the past 3 out of 5 years but recently has gotten ahead of itself and risen too rapidly.

The Euro has hit an 11 month low on concern that the Greek debt crisis may not get resolved in time, as Germany shows concerns about the issue. Germany is showing reluctance to subsidizing emergency loans for Greece and this may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for Greece.

The Dow did hit 11,000 yesterday and looks as though it has petered out. The Volume for the past week is lower than it has been recently. When Volume is low and price increases, that is a bearish sign. However, I have been saying that since the Dow climbed back to 10,600 and here we are at near 11,000. As long as the government plays will the addition of more money into the economy through a variety of measures by the Fed and the Treasury, predictions are going to be impossible with any merit. As I have said many times before, the game is rigged and it is rigged more now than at any time in my lifetime.I continue to be cautious. Painfully, I still own my short positions even while I retain stocks and have benefited the ride up of the market with my long positions. This week I bought more shares of ZSL (a Silver ETF Ultra Short) at $3.78, as Silver climbed over $18/ounce again. ZSL correspondingly hit a new 52 week low of $3.65. As you can see from the 10 year Silver chart, we are at a high price for Silver comparing 10 years of data and I do believe this is a good reason for me to own ZSL, as we are bound to correct again back to $12-$13/ounce in my opinion. Time will tell. Stay tuned.

Dow and markets in for more trouble (Update)

As you can clearly see from the chart, the Dow is staying below its 3 year downtrend line, shown in red. This week's failed auction in Portugal to raise money was the catalyst for world markets selling off. It is a very fragile situation and this coming weeks auction on Wednesday should reveal more weakness in markets, unless someone steps into the breach and buys.

There has been concern shown in news articles that the Euro itself may fail. There are at least 4 Countries with the problem of high debt and a high % of their GDP allocated to paying it off. The US is not as bad as some of these countries but we aren't the best either.

In the meantime, be ready for another leg down in markets as more nervousness takes hold. This will cause the Vix to rise up again while Gold and Silver will take another drop.

I still have my ETF Shorts, TZA, FAZ and my Silver ETF Ultra Short, ZSL.

UPDATE 9:00AM

One thing I forgot but thought was important to add and that was that the Total Put to Call ratio on Friday closed at 1.21 which is the highest it has been since October. The rebound during the day from the 165 drop in the Dow most likely came because of this technical Buy signal. It may be good only or a day or two of trading but I think we are headed lower. Listen to the video of Noriel Roubini on Bloomberg.com to hear his most recent comments on the world financial crisis facing the EU.

Shorting Silver still a good trade

Today I have posted the chart on ZSL, the ETF Ultra Short on Silver. As you can see this has gained almost 50% from $4.00/share price where I have purchased it. It looks as though it is still headed higher but if you won this, consider selling it on the next big surge and buying it back cheaper afterwards. Actual Silver is now at $15.08/ounce and I expect it to go down to $13 to $14/ounce. Gold currently is at $1058/ounce and will break below $1000 in my view for the short term. But longer term Gold will rise and set new highs as inflation concerns drive the world economy. As with any trade, timing is everything.

The Dow is now comfortably below 10,000 and currently at 9963 and has decisively moved below the 3 year resistance trend line seen on the previous post. It looks like the market overall is headed lower as well as volume to the downside has been strong these past 10 days.

Miscellaneous tidbits

I wanted to update my Blog readers in the face of a very quiet news time right now. Yesterday I bout additional shares of the ETF Ultra Short on Silver, symbol ZSL. I got the shares for $4.07/share. When the speculation on Gold and Silver abates, and the prices in those metals drop, I want to make a nice profit. Since Silver usually drops much more than Silver, I figured that was the better play.

Over the next 30-45 days the market direction will become much clearer with the Earnings season for last quarter being reported for the history books. The real question to ask yourself is this. Will the improvements in earnings this year really be enough to justify these high prices for stocks or will a correction finally happen? Unemployment isn't really going to get better anytime soon so when the Unemployment rate for December is announced tomorrow don't be surprised.

This month is going to be cold for many of us, but we know that it too will eventually end and warmer days will be ahead. Stay warm!

Is Shorting Silver still a good idea?

I thought I would update my recent postings with Silver and using its ETF Ultra Short, symbol ZSL. I have shown above the most recent 6 month chart on ZSL and also the 6 month chart on the price of Silver. I got into this trade at $4.24/share and later bought more at $4.54. Current price as of the close of Friday was $4.78/share. You can see from the chart of ZSL that it is now over its 50 day Moving Average line.

In the 10 year chart below of Silver, you can see that the normal price point for Silver is much lower. That in part is the reason I am using ZSL as a trade, because I believe Silver will go back to a more normal range of $12=$13/ounce, compared to where it is now around $17/ounce.


I think this is still a good trade and in the coming weeks of January and February, it will prove profitable. I said in earlier posts I see an unsure market until earnings come out in the beginning of February and coincidentally I see the action the Fed will take to start to allow the economy to make it on its own, causing a drop in Silver in the short term. However long term I see both Gold and Silver increasing in value. This trade is good for only 3 months I suspect.

Gold or Silver? Long or Short?

I thought that since there has been much made recently of the move of Gold this past 6 months to a year, that I would comment on it as a current market play. And, I can't talk about Gold without talking about Silver because over the past 5-10 years, when Gold moves up, Silver moves up at a faster rate, and if Gold moves down, Silver moves down at a faster rate. So as far as I am concerned, the play when considering either as a stock play, Silver is the one to consider.

Let's start by looking at the 1 year chart of both precious metals below. The first chart is the 1 year Gold chart. It had a low of $815 and a high of about $1225/ounce for a gain of $410 from the low or 50.3% for Gold.


The second chart is the 1 year Silver chart. It had a low of $10.50 and a high of about $19.50/ounce for a gain of $9 from the low or 85.7% for Silver. You getting my drift here and why I have always written here that Silver is the play overall when considering the greatest gains during times of significant movement in price? Hope so!


Ok, now let's take a broader look at both metals on a 5 year chart for each. The first chart is the 5 year Gold chart. It had a low of $400 and a high of about $1225/ounce for a gain of $825 from the low or 206% for Gold.


The second chart is the 5 year Silver chart. It had a low of $6.50 and a high of about $20.90/ounce for a gain of $14.40 from the low or 222% for Silver. When comparing both precious metals now for both periods, it is clear that over the longer haul, Silver still outpaces the gains in Gold as a trade and particularly over the past year, while Gold has gotten all the attention, Silver was the trade play to make for the move up. You still with me? Ok, now to the final point of this post.


This last chart shows an ETF Ultra Short of Silver, symbol ZSL for the past year. You will notice it has had the inverse move of Silver to the downside. It had a high of $23.75 and a low of $3.66 for a loss of 84.6%. I bought the Ultra Short ETF, ZSL, because I expect that Silver is going to drop again and settle back to a more normal level and that the gains in this should far outpace any other investment. The reason is that if it goes back to where it was a year ago, you do the math. I just bought it at $4.24/share and if it goes back to its former 1 year high of $23.75, that's a gain of $19.51 or 460%. Now you get it! Even if it goes only half way back to where Silver drops back to only half of its price move, say around $13-$14/ounce, it is a huge percentage gain for this investment trade. Many say inflation is on the horizon. I say not for quite a while and this play will be over before that happens in my humble opinion. We still have some deflation out there. I think it's a no brainer.

And if you look carefully at the last 5 data points of ZSL on the 2 month chart below, you will notice it is headed up and the volume is strong. I think the case to consider this as an ETF stock to trade is strong. The three trend lines, the 9 day Moving average line as well as the 18 and 27 day resistance lines, have all fallen. We closed also above the 50 day Moving average line on Friday. Have I built a strong enough case fpr you yet to consider this?


Remember, I do not now your own financial situation and can't advise anyone as to what to do as you are responsible for your own investments and I am not a licensed financial advisor. I'm just someone trying to stimulate your thinking about your investments. But I would certainly talk this over with your own personal financial advisor and get some expert advice. Ok, I have given the obligatory cautionary note. The rest is up to you to check out.

Consider being a Follower of this Blog by clicking on the word "Follower" at the top of this page just above the WETHEPEOPLE title. Wishing you more prosperity and good health in the New Year.