Hey all,
As is often the case, markets that I exit often continue their respective moves even after I am gone. I then am left only to watch as the option (that I have sold) continue to climb. Indeed, the GLD Put options I sold yesterday at around $4.00 are today more than $9.00! Oh, well, I made my money, so I have no reason to complain...
Onto today's trade.
Today witnessed the single greatest percentage decline in Silver prices I can remember - and I've been doing this in earnest now for more than 15 years. At one point more than 15% lower in one day! This of course should come as no surprise as we all know how crooked the silver trading pits are. It really was just a question of time before they pulled the floor out from under all the public who bought on the way up. Indeed, many small investors are either stopped out of their positions or are heavily underwater. The 'weak hands' are in the process of being removed from the market if they haven't already been so. Trading may be a bit volatile over the coming sessions as an exact bottom is really anybody's guess. One might argue that the $30 level (a big fat round number) was acting as a magnet for any type of pullback. That level has now been touched (and even traded below for a little while) so my hunch is we need to start cleaning things up a bit going forward.
There are a few hints that the cleanup process is already underway. What is most interesting to me (on a day where the market is down 14%) is the dramatic momentum divergence that has developed through today's trading. The fact that huge gaps exists (left from the move on the way down) and momentum is starting to point up (not down) leads me to believe that the market is getting ready to take back some of this bearish price action. While a move right back up top is maybe asking a bit much, we ought to see some kind of bounce, its just a question of where is a realistic target. For some guidance as to where we ought to look for the market to go over the next week or two lets take a look at the 50% rule. A 50% retracement of the two day slide would bring price back into the $34.30 area [(Wed. high $39.63 + today's low $29.05}/ 2 = $34.34]. While this won't represent a monster bull run, a 10% bounce from these short term oversold levels seems realistic and will be my target on the expected bounce.
It seems rather ironic that it was just a few years ago we would not see a $4.00 swing in silver prices for a whole year - and now its my expectation to see it in a few days.
Not wanting to commit too much capital on this initial entry, I have gone ahead and bought about $400 dollars ($395.05 - where $.82 is breakeven...horrible commissions!) worth of October 35 Calls (5 at $.76 + comm) on SLV. Should we get a pullback Monday morning I will look to add to the position but my hunch is that the next buy signal (which I will add to the position) will be from higher not lower levels.
Only time will tell, but I think we have the odds in our favor going long SLV from these level. Not bet-the-farm long just a little long...
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
All appropriate disclaimers apply, DO NOT risk capital in options trading that you cannot afford to lose.
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