Back in orbit?

12:38 am (Hawaii). New day, new post. Will silver (and gold) continue to pull back after last week's parabolic move up? Was yesterday's action in silver futures — a wild surge above 34 and a drastic pullback below 33 — enough to prompt concern for holders of SLV? Escalator up, elevator down action, indeed, as Turd Ferguson says.

Silver futures are now bouncing off the 32.40 level, now at 32.74. How long will this last? I have my doubts. Futures could not stay above 34 or 33 after hitting 34.40 or so yesterday. I'm not looking for an instant grand slam or even an extra-base hit. I just don't want to be left holding the bag if silver and SLV crash.

Never trust the banksters and diabolical shorts, especially those who manipulate silver prices. NEVER.

As for crude oil, Turd Ferguson (see link below) insists that a break through resistance at 94 is bullish. However, do we agree that the Fed would allow that? $4 gas in February or March? I have my doubts. After all, there is no logical reason why silver isn't already at 35 considering the demand and shortage of the physical stuff. Yet, there it is, sitting at 33 (32.89 now) as it continues to be manipulated, even as it gains ground day by day, its bulls crawling forward and the shorts retreating.

I see no reason to hold SLV or any paper silver for the long term in these conditions, positive as they may be compared to years past. In fact, the volatility, higher lows and higher highs convince me that trading in and out is sensible and reduces risk significantly. Same deal I had with AAPL recently, and I sure am glad I wasn't stubborn about holding AAPL down to 350 and below. Not when I can get back in sooner or later.

Update, 1:50 am (Hawaii): Jeff Nielson explains the folly of silver ETF SLV (link below). Can't say I'm surprised, considering the massive global demand and the dwindling supply held (supposedly) by Comex. Detractors and unbelievers. The numbers don't add up. Numbers don't lie. Again, SLV is simply a trade. I am married to nothing.

Update, 3:33 am (Hawaii). Sold all SLV at 32.40. Not the most gratifying trade, but it'll do. Locked in profit of 93¢/share for a 24-hour* hold. Why sell now? This is my first trade in a precious metal-related vehicle, so it's a plus psychologically no matter how I may try to intellectualize anything. Also, I don't trust anything about Comex, JP Morgan and the Fed when it comes to backing paper silver with the mirage of silver supposedly in those vaults. I missed a chance to sell at the premarket HOD (so far) at 32.63 and at first, the MACD (1-min) looked promising. Once it turned negative, I was ready to sell at 32.28, but my own error prevented a sell (forgot to sell at extended hours). SLV rallied to a new high (32.63) quickly, but sold off quickly, too. The large lot sizes told the direction on either side going up and down. Then the MACD failed to get positive. Divergence down (double bottom?) and I got out as a precaution to a possible breakdown. In the face of a flat open, the profit was a nice 1.6% gain for my modest bankroll. If the environment remains constant this week — Middle East/oil stress, overbought stock market, rotation to precious metals ... I'll use silver again. Weapon of choice, however, will be SLW, not SLV.

Update, 4:12 am (Hawaii). Kooky behavior in SLV, which sold off to 32.33 (still way up from Friday's 31.79 close), then ran to 32.50 within 4 minutes. Yeah, a WTF moment, indeed. The kooky part is that bid sizes were moderate, which tells me that though volume in that 4-minute span was rather high, there was a shortage of sellers as it bid up higher. Same thing on the way down; shortage of buyers. If I had to guess, I'd say the big boys are trading to each other just to manipulate the price. How shocking.

SLV now at 32.55. It's not so much seller's remorse for me. It's more my desire to understand the ebb and flow of this new (to me) vehicle. Not for the faint of heart. Though SLW is fundamentally superior, dealing in real silver as opposed to propped-up, probably non-existent silver for SLV, it is SLV that has the volatility that makes for a more frequent trade. While SLV has rolled up and down in 20 to 40¢ swings, SLW stayed within 5-15¢ of its high of the day before busting higher to 40.94 (premarket). SLW is up 4.5%; SLV is up 2.2%. Both nice, but SLW traders/investors are resting much better. After all, who wants to be holding SLV if and when JP Morgan is on the hook without the bullions to back up the paper?

Update, 5:01 am (Hawaii). SLW still unwilling to retrace 50% (40.54) of today's gain, fell to the 40.80 area and bounced. SLV, on the other hand, was on cue and sank to 32.20, right about at 50% retrace (32.24). I stayed out, though, with the MACD deep underwater. Economic numbers released on CNBC a couple of minutes after the SLV bounce and the market rallied, carrying SLV to 32.46.

UCO, which topped my watch list most of the morning, is still up nicely (8.8%). Nice bullish play on oil, but it's too hot to touch here (11.80) with the MACD underwater. Hard to gauge how oil and metals will respond to the new consumer numbers. An unusual thing here: on the daily chart, UCO's gap up today is enormous, but the candle today (so far) is red. On the 1-year chart, all of UCO's gap-ups have been green candles. Either today's candle turns green or we have a real oddity in the midst of geopolitical strife.

Update, 5:23 am (Hawaii). Silver selling off en masse in the past 5 minutes. SLW. PAAS. EXK. SLV. Looks like big boys are in play, unloading by the truckload. 50% retrace levels are moot here. SLW dipped to 40.34, well below the 40.54 (50%) level. SLV dragged to 31.90, far below the 32.24 halfway retrace. The silvers are bouncing a bit here, but the coast is far from clear. Need to see a little consolidation before I dip in. UCO holding on at 11.75, just above the day low, still up 8.6%. Market rally stalled out; DJ down 63 (-0.5%), NAS back to 30 points down (-1.1%).

Update, 5:37 am (Hawaii). Still 100% cash since the premarket sale of SLV. As SLW, arguably the most potent of the physical silver plays, dips to its low of the day (40.12), I'm reminded of the wisdom of StockGuy22. Traders are human, and psychology kicks in often. Round numbers do more to kick-start buys and sells than we might think. If SLW can't hold 40, it could get real ugly. A lot of stop-loss orders are likely at that level or just below. I want a position in SLW, but only if the price is right.

Update, 5:51 am (Hawaii). The last bastion of positive momentum this morning, oil, is holding its ground. UCO retraced 50% to 11.49, then bounced and is now at 11.57. Strength. At 11.49, there was little selling pressure left and buyers are stacking big bids. A juiced-up ETF, always extra risky. Can UCO finish the day at its high (12.16)? Tempting to enter here as the MACD starts to push out of the bottom of the ocean here.


Update, 9:29 am (Hawaii). I have to let you know, the one or two of you who actually skimmed down this low in this post to see if there was anything worthwhile (and I'm not being falsely humble), that I don't know jack about precious metals, options, COMEX, deliveries and contracts ... but I do know this: When 'it' hits the fan, you better be able to smell it and run like the wind. Has 'it' already hit the fan?

All the scuttlebutt about silver deliveries being due in six days (February 28), how there's no possible way COMEX can deliver, how they are lying sacks of 'it' ... it makes me worry. And I don't even have a single share of SLV or mining stock or actual bullion. (Though having a few bars would make me feel quite kingly.) I've been watching the market since selling SLV in premarket, seeing SLV hang on above 32, which is a bit of a surprise considering the real deal(er), SLW, lost most of its gain and can't stay above 40 anymore. For today, at least.

But say COMEX doesn't deliver on delivery day. What happens then? Does the Fed bail out J.P. Morgan and COMEX? Why does that seem remotely possible? Yeah. It's actually possible. That's what is effed up about things nowadays. They could be lying their ass off. Silver deliveries could be a big whiff. Who would lose? Yeah, the average Joe, you and me, S.O.L. So that leaves only one commodity with a fair chance of rising tomorrow.

It's oil that still floats on water while the rest of the market is sinking. UCO was up 8.6% most of the day. Now it's +9.1%. I would love to have some UCO, but +9% is shark-infested territory. I had my chances, though. Twice, UCO dipped to the level I was watching: 11.50, or 50% retracement of today's gain. I failed to pull the trigger for various technical and having-no-forking-balls-of-steel reasons. I don't regret staying risk-free and profitable for today, though. But I am watching closely. Maybe UCO sells off into the close. Maybe UCO explodes again tomorrow in lieu of any selling pressure. One thing for sure: Gaddafi will not change his stance overnight. There will be convincing* phone call from the White House. His son says they'll blow up the refineries before they let go of power. I don't doubt these guys one bit.

So why isn't UCO up 25%? Or even 50%? It probably will take some time, but if things stay like this for days, weeks ... it'll happen. But once the correction is over and AAPL and MOS and BIDU rally — you really think the West and China will allow America to pay $5 for gasoline? — UCO will stall out and fall like a pigeon that flies into a glass window four storeys up. (I saw that once. It was bizarre. The pigeon didn't move for 5 minutes. Then it came to life!)

It comes down to advantage/disadvantage. Edge or no edge. No edge? Stay out. Edge? What are the percentages in my favor? 51-49? 60-40? 90-10? At this point in a scared market, it's about managing risk and calculating how much I can handle, which isn't much. A buy of UCO at my beloved 50% retracement would be at 11.50. From there, my guess is that UCO has a 75% chance of seeing 12 before it sees 11; a 25% chance of not doing so. So my confidence level equals a +50%. That's a healthy stake I'm willing to put on the table, whether that's 50% of my bankoll (on a tight stop) or a risk factor that allows up to 50% risk cost or any other strategy that equates to my risk allowance. It's different for every single person. For me, it's probably not actually 75-25 considering the climate of the market. I'd be 75% happy to stay neutral and in total cash. That's a factor I embrace. Things cancel out if I'm honest about today.

What if Gaddafi has a change of heart overnight, goes on Libyan state TV and says, "Well, I changed my mind. I'm out. Have fun managing this mess, y'all." That would fork up any UCO long. It's a 1% chance he walks away. But it's there. It's possible.

So there you have it. I want an edge. I had one with SLV, got a little lucky, managed to leave before the storm hit. But I am not going to surrender. I still want my edge. Fully loaded, hands on both weapons. It's the only way to win. The only alternative is to walk, or run, far away.

Post-presidential reading
Shan Saeed: Why you need to be bullish on silver (Feb 22 2011)
Turd Ferguson: You'll only be right once (Feb 21 2011)
James Turk via Run Red Hot: 'New buyers are willing to take on the silver shorts' (Jan 15 2011)
Run to Gold: Potential COMEX gold fail (June 18 2009)
Jeff Nielson: Your ETF-silver is for sale (Sept 14 2009)
Trace Mayer: A problem with GLD and SLV ETFs (Dec 13 2008)
Bill Haynes: 100-oz silver bar shortage developing in US (Jan 27 2011)
Eric King: Embry - Short squeeze in silver, manipulators getting overrun (Feb 22 2011)
Jason Hommel: Silver default looms?! (Feb 20 2011)