Silver, $26 is the Line in the Sand

The $26 level has acted as silver’s support for over two years now. And after a 10% slide over the past three weeks, including today’s 6% drop, we’re once again challenging this all-important line in the sand.

Will $26 hold this time? Maybe not… yet I remain a long-term silver bull and see lower prices as a buying opportunity.

It’s been a painstaking ride for silver buyers, my clients included. Fortunately, most outright long futures positions are hedged off with some sort of options exposure. It usually makes sense to sell calls or buy puts against at least a portion of large long positions. Silver is no exception.

Now, let’s take a look at sentiment… which has turned extremely negative.

Silver futures chart, April 12, 2013

Silver futures chart, April 12, 2013

“Calling all contrarians” …”Calling any contrarians”

Silver sentiment is turning more negative by the day –

Gold is now trading under a psychologically important level ($1,500), likely triggering a flood of sell stop orders and shaking out weak longs. Oh, and… Goldman Sachs is now predicting a bear market in metals, including gold and silver. Meanwhile, Citibank came out today claiming the end of the commodity bull market has come. And adding insult to injury… the equity bull market rages on, with overall bullish complacency aiding the recent rout in metals. All we need now is a Newsweek or Time magazine cover proclaiming the death of commodities… and we’ll be able to call the bottom.

If you haven’t guessed it – I fully subscribe to the theory of being a contrarian at sentiment extremes. As weak hands let go of their longs … I will take silver off their hands and be a buyer with my clients.

Whether we’ve fully put in a bottom is not the point. We could easily fall through $26 before hitting rock. But I’m more concerned where prices will be in the coming months, not days. I expect prices closer to $32-34/ounce by Q3 and aim to use this two-year long setback as a buying opportunity within what I see as a longer-term bull market.

I recommend wading into bullish trade slowly and consider incorporating options hedges.

As always, I’m here to discuss specifics and give guidance. Give me a call…

To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
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