Tuesday, May 24, 2011

GGR Excerpt, Silver Parabolic Corrections

 HOUSTON -- Gold and silver seem to be a bit firmer this Tuesday morning, as expected.   (Gold in the $1520s and silver in the $35.80 region as of 07:50 CT.) We suspect that a meaningful number of traders that have jumped on the short side of the silver parabolic downside shall become inured to the notion that volatility is a two-way avenue just ahead.  Certainly there is that possibility, but we remain somewhat wary and will remain that way for the next little while, if for no other reason than it seems soon for a silver reversal and for the silver bulls to become confident.

Because of our physical metal holdings, we Vultures have the luxury of waiting patiently for exceptional opportunity for our short-term trading ammunition when we want to.    

For now, just below is an excerpt of this past weekend’s full 37-page Got Gold Report, which was delivered to Vultures (Got Gold Report Subscribers) Sunday afternoon and posted to the password protected subscriber pages then. 

Silver Parabolic Corrections 

We thought this would be a very good time to take a look at all three of the previous parabolic peaks and subsequent corrections of the silver market since the current silver bull began in 2003.   Just below are three graphs showing them with a few pertinent comments embedded in the graphs themselves.  We will have a couple of comments to sum up the slide show.

First up, the 2003-2004 parabolic break.  

20110524SilverBreak2003_4
 If any of the images are too small or get cut off click on them for a larger version. 

Next, witness the 2005-2006 parabolic breakdown. 

20110524SilverBreak2005_6

No, we are not looking at identical charts, but by golly they sure do look similar, do they not?  Continued…  

 

Next, view the pre-crash 2007-2008 parabolic break.  

20110524SilverBreak2007_8

Note the demarcation line placed at the end of July, when the world plunged into the 2008 panic and skewed all charts everywhere for a time.  We argue that up until then the world was still trading more or less normally.  We would also argue strongly that had we not seen the 2008 panic, silver would have already taken out is former all time high by now.   

Now, we can compare those previous three parabolic peaks to the current version, what will be known in the future as the 2010-2011 parabolic break.  

20110524SilverBreak2010_11

Let’s not make it any more complicated than necessary.  The previous three parabolic breaks ranged from a fall of 25.1% to 37.7% off the peak, in 33-45 calendar days, retracing between 51.8% and 81% of the parabolic major move that preceded it.  

This current example is about on par with the others percentage wise so far, but the low came only 17 days into the correction (so far) and it’s on the low side of the amount of retrace of the major move preceding it.  We already know we will get an argument on that stat from one particular pro-trader, who will argue that this major move began with the January correction. (Because one can point to an interim turning high ahead of it).  If we stipulate to that argument, (but we read charts differently than our long-time very close friend and he knows it) then the retrace so far in this event is more like 88.6%.  We mention that only to head off comments from charting purists and zealots.  We simply mark the major move as beginning this time with the July 2010 test of the 200-day moving average and let’s leave that comment right there. 

Normal Parabolic Break So Far   

Although this current version looks and feels like it is uber-harsh, in truth it is not out of place or unusual at all when we compare it to the previous parabolic corrections for silver, is it?  Well, at least not yet it isn’t.  We wonder if the smart-sounding, but mostly clueless pundits that are now calling for a complete silver collapse have even looked at the charts of the past, instead of merely at the current nominal price.  We could be wrong, of course, but we suspect this parabolic correction event will not differ all that much from the previous three.  Except, we might be able to make a good case that it may end a little sooner than the other three.  Why? 

Well, it is our impression that the previous three breaks came when there was ample physical metal in the market to satisfy the then growing, but not yet intense demand for commercial bars of physical silver. How do we know that there was plenty of silver then?  Simple, the silver futures market stayed in a constant state of contango, meaning that silver metal was still “bidding for storage,” (thanks to my friend Dennis Gartman for the elegant term), even when the speculative juices were pitched on high.  

Is that also true this time?  Nope.  For nearly all of this particular parabolic event the silver futures market has been in various shades of backwardation, meaning that silver was being “coaxed out of storage.”  One might argue that this parabolic event has now liberated enough silver to “answer” the demand, and indeed the backwardation has moderated some, but even now, after silver has corrected some 30+% there is sure-enough backwardation in the silver futures strip.  Yes, some silver has become available, but the demand for it remains very intense even in this pause in momentum. We sense legions of bargain hunters chomping at the bit to take advantage of “the next leg down for silver.”  

Does that mean that silver is about to spike much higher right away?  No, not necessarily, but it is certainly possible. What we think it means is that for holders of a significant amount of physical silver, we can wait for a better buying op for short term trading ammo, but if we do get one more good leg down into our silver op box, we’d probably be well served by adding to our physical silver stash – in size.      

Vultures might consider printing pages 23-26 of this offering for a comparison purposes and as models to reflect on going forward.  This may be the only time we use these particular graphs for a very long time.  

(End of excerpt.) 

***

We are well into our Vulture Bargain Hunting Season (VBHS) and have already been active in a few of our “faves,” especially the ones that have traveled all the way down into our preferred “op boxes,” even though we expect that the VBHS could very well run some distance into June.  That is, the small miners collectively will likely continue to drift lower, but individually each of them will be discovering their own levels of OS or overwhelming support along the way.  Vultures know what we mean by that term. 

An enormous amount of new share issuance is weighing on the Big Markets this week and that has the potential to be a significant headwind, so easy does it friends and fellow Vultures.  

We may have another excerpt of the report in near future, so check back in if it is convenient.        

To subscribe to the Got Gold Report, click on the GGR Subscribe link above and to the right and accept our humble thanks for doing so.That is all for now, but there is more to come.    


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The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter


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