The Silver Debacle

Why this rocks your world even if you don’t own silver/gold/commodities

The Masters of the Universe have created another fine mess that can trace its origins back to the lack of confidence in the American financial system brought on by the 2008 crisis. The root cause goes deep, but that’s another editorial.

The latest announcement after the bell sounded yesterday was that the CME group was going to raise margins for the fourth and fifth time on silver today and again on May 9th. The total amount margins raises = a huge 17% LINK

Silver prices have  plummeted about 20% in the last four days LINK to ETF that tracks silver

Analysis

The world’s entire economiy needs fair credit and banking to survive. When that system miscalculates risk others (the public, investors, & holders of goods) end up paying the price and confidence is shattered. The Silver Debacle is another blow to our wobbly financial system.

Jesse’s Cafe Americana blog has an accurate representation of the short squeeze going on in silver from the silver owner’s perspective. Unfortunately the post is on May 2nd and therefore old news. However the basic analysis is spot on. Some in the money quotes on why silver is falling and magrins were raised.

“The Comex inventory is down to a new low of 33 million ounces of deliverable silver, at least according to their published records [this]…open up a yawning chasm between the paper markets and the physical markets that will be harder and harder to ignore…

Tens of thousands of buyers, both big and small, taking on the banking giants, draining them of silver, bouncing back again and again, and finally leaving them exposed, high and dry, and nakedly short, for all to see. The many, seeking to string the bankers on a rope of silver, and bring them down.”

The raising of margins by CME & others was the retaliation, not selling exhaustion – The reason silver prices are falling.

We have a war on in both the dollar (see below) and silver/commodities. Both sides have a good, bad and ugly. In the silver pits the bankers are now winning.  The end results could shatter or seriously impact far more than commodities trading and stock rallies.  Stay tuned.

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KISS & Stocks

(Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

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Index Percentage Volume
Dow -0.66% down
NASDQ -0.47% flat
S&P 500 -0.69% down
Russell 2000 -1.29% -

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Technicals, Fundamentals & Analysis

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Shorter Term Forecasting Indexes

There are hundreds of forecasting tools, – These two tools have worked

When they stop working Investors411 will use other Indexes

  • The Dollar (USD) [Any daily price move over +/- 0.50 is significant. Dollar usually moves inversely to stocks] Down, then fell slightly yesterday  -0.15. Clear bearish trend has flatlined for a week.  For analysis see The War” (below)
  • McClellan Index(MO) [The very rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks .] Fell  to -18.37 Below zero which is bullish, but not yet overbought = Neutral

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Reading The Tea Leaves

The War

What to watch today Forget stocks and watch the dollar

  • UUP(Tracking ETF for dollar) Remember - Usually the dollar is a contrarian indicator for stocks. Any major fall may give temporary help to US stocks, but a major breakdown also signal major structural problems with the USA

There’s a massive war on out there between bears and bulls over the dollar. The dollar sits as a major multi year support level and if it breaks the dollar will reach new lows relative to other worldwide currencies.  Click on the UUP symbol above and you will find massive trading volume as the dollar index has basically flatlined over the last week. This HUGE volume can be looked at as all the dead bulls & bears in the war.

This is the bulls last stand (historic lows in danger of falling) and they are putting up quite a fight.

How this war resolves itself will dramatically everything from US stocks to worldwide economics.

Reading Tea Leaves – Short term victory for dollar bulls (dollar goes up) and long term victory of dollar bears.

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Paul’s Corner

The blood bath continued Wednesday May 04 for most of the commodities, silver, oil etc. along with a broad sell off in the general market.  Is this the end of the good life as we know it or is there hope for the next time you hit reload on your portfolio?

One of the ways to evaluate the health of the market is to look at the charts of the majors, the Nasdaq Composite, the NYSE Composite and the S&P 500. At first glance things don’t look too good but closer examination we find all 3 of bounced off of their 17 day moving averages yesterday.  The following chart shows the numbers.

LINK

So the line in the sand for the market is the 17 day moving averages for these indexes. If we break below the 17 the next stop/support is the 50 DMA. If we break the 50 we might be looking at 2008 all over again. Until we see the market is safely holding at or above the 17 we sit on our shoe box of cash!

Ok, back to business, it’s always good to see what did well on a down day. About noon the Semi ETF SMH turned up and quite a few of the semis I follow had a decent day.

So are the semis really moving? Off to HGSI we go to check out the  Industry Group List using the Warehouse  we find the semi group closed at # 6  out of the 154 groups.

LINK

The semis gave notice a week or so ago that they were getting ready to move so it does appear the rotation we talked about last week is in full gear.

One of my favorite scans each evening is where I sort for the top 100 high demand stocks of the day and then create a pie chart of the group to see if there is a group showing strength. Today we find the Semiconductor-Mfg group top and the Semiconductor-Equip group third.

LINK

Here are the semi stocks found:

  • Semiconductor-Mfg (9.00%, 9 securities)
  • Analog Devices  Inc. (ADI)
  • Entropic Communications  Inc (ENTR)
  • Intel Corporation (INTC)
  • Maxim Integrated Products (MXIM)
  • Microchip Technology  Inc. (MCHP)
  • National Semiconductor (NSM) (Buy Out)
  • SMART Modular Technologies (SMOD) (Buy Out)
  • Spreadtrum Communications  I (SPRD)
  • Xilinx  Inc. (XLNX)

Semiconductor-Equip (7.00%, 7 securities)

  • AXT  Inc. (AXTI)
  • JinkoSolar Holding Co.  Ltd. (JKS)
  • KLA-Tencor Corporation (KLAC)
  • Kulicke & Soffa Industries (KLIC)
  • Novellus Systems  Inc. (NVLS)
  • Ultratech  Inc. (UTEK)
  • Varian Semiconductor Equipme (VSEA)

I see a few of the shoe/retail  stocks started running today:

  • Retail-Apparel/Shoe (3.00%, 3 securities)
  • Gap  Inc. (GPS)
  • Ross Stores  Inc. (ROST)
  • TJX Companies (TJX)

Apparel-Footwear (2.00%, 2 securities)

  • Crocs  Inc. (CROX)
  • Nike  Inc. (NKE)

Once the market settles down and gives us a good indication of a turn up, many of the stocks listed would probably make good candidates for a trade, add all them to your watch list. There are many quality semi stocks that didn’t make this list today so do some shoe work and see what other semis look tempting. YSL 4.5 member SPRD (a Chinese Semi) bounced off the 50 today so it too may be getting ready to party once again. Notice I suggested add to your “watch list” and not to your “buy list”!

FWIW I am 99% in cash and at times like this I can sleep. I had stops under all of my stocks before I left the house Tuesday and I was stopped out of everything reasonably well. So do we all use stops?

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Positions

See POSITION section of blog (at top of page) for lists of potential stocks & ETF’s including ”YOUR Stock List.”

Disclosure - I have personal ETF positions in REMX, ZSL (major position double short silver) RJA (smaller) DGP (smaller) and manage a fund that has a 5 year position in GLD.

  • ZSL rallied a huge +11.07% yesterday.  Plan to sell some into rally today.
  • Other commodities are falling in major part due to the silver debacle. Until Silver prices normalize nothing is safe.
  • If you are trading the ZSL you have to be sitting by your computer.

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Longer Term Outlook

CAUTIOUSLY BULLISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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