Monday, August 22, 2011

Silver Very Close to Shorting Opportunity

Click on Chart to Enlarge

Based on looking at thousands and thousands of charts, when a rising wedge like this ends, it often touches or pokes through the upper wedge line before peaking and heading down. There will often be a gap down through the rising wedge line as price begins to decline. And there may be a backtesting rally underneath or even slightly above that rising wedge line shortly thereafter. This is followed by a quick move to exceed the low of the wedge. There is often a pause or brief rally attempt at the low, before a failure and resumption of the downtrend to the next support level ($26 in this case).

Assuming this rally ends in the next couple days, all the info posted on the chart would likely lead to a move to $26 or below by mid to late October.

I am holding the Oct 34 puts I purchased until expiration regardless of this poke to new rally highs. I would strongly encourage such put buying right now at these levels. The reward potential is phenomenal.

I'll post a short on this as soon as a reversal appears. For technical traders you can use either hourly or daily MACD to time the entry from this point.

This pattern in silver is so pure that I think the implication is that gold is likely topping soon too. I would strongly suggest selling of ALL gold investments here and get out of gold and silver stocks also. SLW is forming a head and shoulders top almost for sure. ABX looks like it is finishing an upward ABC after an initial breakdown.

Notice how the US Dollar Index is still holding above the May lows despite a phenomenal run up in gold prices. When gold comes down, watch the US Dollar take off to the upside. Again, Oct calls on UUP or puts on FXE could serve this purpose with limited/defined risk.

The implication ahead is a deflationary phase with declining commodity prices and rising US Dollar valuations. Stocks may chop or rebound here, but the longer term trend I take to be down based on everything discussed recently on this blog.

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