8:11 am (Hawaii) Yes, the question is not, "Why is this such a terrible Tuesday?" The question is, "Who is this terrible for?" If you bought silver and/or silver stock(s) at the high and didn't have an exit strategy — run for the hills at the first sign of danger or buy puts or ... ), then you're in a world of pain. Will silver rally again one day? Of course. Supply and demand won't change, even with all the margin hikes in the world by the bad guys. But the rally won't be starting today or tomorrow. The old saying is, "Get out early or don't get out at all." It's true in trading when a trade goes negative, but take it one step further and remember whether or not the vehicle you are riding is fundamentally strong. If not, it's time to cut those losses and get the hell out.
That's the gist of it. I knew trading SLV or any silver-related vehicle was dangerous with Spot Silver above 40, and more so near 50. So I got out quickly and often. No regrets other than holding a position or two too long, actually, and leaving some nice paper profits on the table. But past experience is a kind friend. Recent experience can be painful. Best to learn from those with plenty of past experience so you can avoid their mistakes presently.
The indices are all down moderately, but the PMs are getting whiplashed. Spot Silver gradually declined today, then fell off a cliff to 41.36 in the last few minutes. Spot Gold has held firmly around 1540. The difference is momentum and the decision of the power players to inflict major margin hikes on silver. In the end, the sharks win most of the time. Those who jumped on the bandwagon and rode Spot Silver down are banking enormously.
ZSL, the 2x silver bear ETF, went from 14 to 16 yesterday. Today it went from 16 to 17.50 or so, currently at 17.43. The talking heads on TV pumped it on Friday and it continues to swell. Won't be long before that trade becomes overcrowded, as silver did, and momo switches direction. All in all, with all the big money stomping down on silver, there's no telling where it will finally bottom. That makes ZSL appealing from a daytraders point of view, but I'm inclined to sit here in 100% cash.
If there's any possible omen of hope, it could be leaders like AAPL and F. Both are up while my watch list is only 19% green.
Update 2:00 pm (Hawaii) Afterhours trading has closed shop and ZSL, the 2x silver bear ETF, remained strong. Off it's HOD of 18.25, ZSL closed at 17.85. A 30% gain in two trading sessions is preposterous. At 20% most fast risers are ready to sell off. At 30%, when the selling begins tomorrow, it will get ugly — unless the rumor about another margin rate hike in Spot Silver turns out to be real.
Fast Money spent a good 8-10 minutes talking about silver at the show's opening. Peter Schiff, their first guest, believes the correction is probably over and it's a good buy here, even without speculative traders. From a neutral vantagepoint, it would appear Schiff is right. A 20% pullback is a correction. But the possibility of another margin hike at any time has traders spooked, no question. The cumulative effect of hikes by CME will wane, naturally. When that fear subsides over time, where does Spot Silver go then?
Brian Kelly, who continues to be bullish on silver, pointed out the vast imbalance in the CME's numbers. It's times like this that the real bulls bust out information that Main Street knows, but the media normally won't repeat. It's entertaining. Fast Money could go on and on if it wanted to about all the manipulation and margin hikes ... but CNBC will never go much further than this. Comex and JP Morgan would put the fear of retribution in them, wouldn't they?
Update 8:26 pm (Hawaii) If you feel like you've been used and abused by this market, don't feel alone. The Fly is an upstanding trader who has always been transparent about his dealings. His latest post is one that I admire. It's easy to brag about victory, but defeat? He goes the extra mile and then some. Finding that fine line between over-aggression and passivity is always a challenge. As someone who used to be overly aggressive, then became too passive, it's my challenge, for sure.
For Le Fly to be considering shorts is mind-boggling. Not that he wouldn't win at that ... but it's definitely unexpected. Somehow, I can't doubt King Turd, who is starting to believe that we've hit a bottom in silver.
Turd Ferguson: Smells like capitulation (May 3 2011)
The Fly: Late night epiphany (May 3 2011)
Update 11:47 pm (Hawaii) More reading overnight.
Trader Dan Norcini: Silver becoming a proxy for entire commodity complex (May 3 2011)
(video) Peter Schiff/Max Keiser (May 3 2011)
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