Futures Outlook: 08/7/13
Every Cloud Has a Silver Lining
Over the last month or so, Silver has been side-winding. This is extremely important to anyone who holds silver bullion as well as any of those thinking about current or new positions in this metal.
Many wise people keep their eyes on the metals markets and have for years, decades, and better still centuries upon centuries in the course of mankind. If you are one of these people, I believe that you need to pay attention to Silver over the next number of weeks and months.
This Daily chart on Silver illustrates the tail end of the price point failure that we have seen in Silver over the last number months. I was prepping for bullish potential in Gold and typically that equates to bullish potential in Silver as well. In my heart of hearts, I do still believe in the long term rally potential of both Silver and Gold as I’m certain many of you do also. However, right now you need to be paying close attention to these charts.
After Silver’s failure, as I mentioned, we have found a bit of a bottom but at this time I am not impressed in the least at the lack of real rebound. Is Silver just slacking or could it be prepping for a push lower? On the rebound we failed to make or break the 21 level. I would have felt a lot better about inherent strength if we had at least been able to push above 21 and maybe even challenge the 21.50 territory, but it quite simply didn’t have the power. Right now, the territory in and around 19 is extremely important as it is behaving as a temporary region of support. We, of course would need to see our prior lows around 18 broken down to be truly concerned, but I want to raise the caution flag in advance of that potential failure.
Moving forward to our Weekly chart:
For most of you, I don’t really need to highlight this Weekly chart which clearly shows the failure of this year, but I do so that I might be able to ask you to truly consider where you stand, where you have stood, and what you intend to do moving forward. This chart, for many represents a bit of pain as value in mass slid through the fingers of those holding bullion, ETF’s, straight futures contracts, or other methods of trade. As Silver lost almost half of its value in 2013, what was your play? I speak often to those who just took the hit, because they’ve been in it for so long that they still have a profit. I speak to many who continue to buy it as they use the opportunity to increase their holdings at a lower price. While these ideas are not necessarily wrong, I would ask each of you to consider how you might have been able to take advantage of the failure besides buying more of it as the price continued to fail. Buying options to take advantage of the failure represents a fixed risk opportunity to implement not only a protective policy for your holdings, but also the potential to gain while the market slides. Ask yourself the worst case scenario….if Silver explodes to the high side and I have purchased options that would profit in failure…what would happen? The worst case scenario as a buyer of these options, would be that you would have lost the capital that you spent to purchase the options which might be a much lesser value lost than the true loss of the value of Silver, the underlying commodity. If you held Silver outright, as mentioned before, you may have lost almost half of your value so far in this year alone.
Silver, at this point, respectively doesn’t have a lot of lower end territory in comparison to the failure already encountered since reaching all time highs. I have spent this much real estate in this article writing on this tangent if you will, because I believe that it is important to learn, adapt, and implement strategies that you might not have ever used in times prior. In short, let’s learn how to be more effective in these markets as investors and as individuals. To those of you that hold bullion, those of you who when asked what did you do with the fail and your response was “I bought more!”…allow me to ask you now what if you could have potentially profited and used profits on a failure to fund the purchase of additional bullion? This is the type of protective and pro-active strategy I would like to see you all consider should these types of shifts occur.
As we move on to the Monthly chart, I want you to recognize just how important the 20 marker is and has been historically. In 2007, we had a hard time breaking 15. In 2008, we stayed above it, but couldn’t break 20 well and then found a failure which took us below 10. On the next rebound, it took 2 to 3 years to recover and come to test 20 again. Now, after this year’s dramatic fail, which comes on the heels of 2011’s failure and 2012’s broad channel action, we find ourselves in proximity to 20 once again. We have been lower than 20, but we still hover around the territory. Our true issue in Silver right now is the side-winding or consolidation that is occurring between 18 and 21 give or take. Silver may end up staying in this range for some time, but it is important to realize once again that every consolidation leads to a break. The purpose of today’s article is to get you focused on the range of importance and to throw a caution flag since Silver hasn’t rebounded yet with the energy that I would like to see on the bullish side of the coin.
Ultimately, I still would like to see a very healthy Silver rally, but I fear that it may not be on the books at a rapid pace and we may still see lower levels in advance of a true recovery. My thoughts for you today are consider what you hold, where you’ve been, and where we could go. Don’t sit idle as markets drain your wealth. Make attempts to protect, preserve and potentially grow what you’ve worked hard to earn. Use your options wisely and remember, that we are here to keep your options clear.
Lindsay Hall is Chief Market Strategist with commodities specialists RMB Group. Get the latest futures and commodities commentary from Lindsay and the RMB Group on our Big Move Trades–an online report offering trading ideas backed by research.