David Stendahl called me about Silver last week. A quick glance at the chart showed a major price drop.
How major? Well, after the big move up. Silver dropped over 27% last week, the most since 1975.
Technical traders will note that Silver was running into resistance at the 48.12 Fibonacci level. A week later, Silver is now resting at the 34.66 … which is also a Fibonacci support level. Stendahl points out that the Value Chart indicator has formed a pivot bottom suggesting that Silver is ready to find support. Traders will likely keep a keen eye on whether Silver can stay above the 34.66 level … otherwise, the selloff continues.
In This Case, Technical Analysis Doesn't Tell the Whole Story.
According to MarketWatch, retail buyers may have stayed invested in silver long after most hedge funds and other large investors had left.
Data from the U.S. Commodity Futures Trading Commission shows money managers’ bets that silver prices would go higher declined starting mid- February, when silver prices started to climb in earnest.
The trend suggests the so-called ’smart money,’ the large managed funds that report to the CFTC, had started to back away from silver and "retail investors picked up the slack,” said Tom Pawlicki, a precious metals analyst with MF Global in Chicago.
The CME Group, which operates the Nymex, had raised its margin requirement for speculative traders twice last week due to high volatility. These investors must now put up $14,513, per contract, for a day trade, and a further $10,750, per contract, to hold that contract overnight. Both requirements are up 24% from a week ago. For investors holding hundreds of contracts, that's a difference of hundreds of thousands of dollars.
Silver is much less costly than gold, but gold's margin requirements are less than half of silver's. The higher margins are a deterrent to new investors looking to enter the market.
Apparently, to manage its exposure during the parabolic move higher (and the shift from 'Smart' to 'Dumb' money), MF Global (which is one of the big Futures trading houses) raised its margin requirements significantly higher than the CME did. MF Global, run by former Goldman CEO Jon Corzine, hiked its silver margin to $25,397. Consequently, MF Global's margin requirement is 175% of the CME's requirement. The result … a rush to exit.
David Stendahl called me about Silver last week. A quick glance at the chart showed a major price drop.
How major? Well, after the big move up. Silver dropped over 27% last week, the most since 1975.
Technical traders will note that Silver was running into resistance at the 48.12 Fibonacci level. A week later, Silver is now resting at the 34.66 … which is also a Fibonacci support level. Stendahl points out that the Value Chart indicator has formed a pivot bottom suggesting that Silver is ready to find support. Traders will likely keep a keen eye on whether Silver can stay above the 34.66 level … otherwise, the selloff continues.
In This Case, Technical Analysis Doesn't Tell the Whole Story.
According to MarketWatch, retail buyers may have stayed invested in silver long after most hedge funds and other large investors had left.
Data from the U.S. Commodity Futures Trading Commission shows money managers’ bets that silver prices would go higher declined starting mid- February, when silver prices started to climb in earnest.
The trend suggests the so-called ’smart money,’ the large managed funds that report to the CFTC, had started to back away from silver and "retail investors picked up the slack,” said Tom Pawlicki, a precious metals analyst with MF Global in Chicago.
The CME Group, which operates the Nymex, had raised its margin requirement for speculative traders twice last week due to high volatility. These investors must now put up $14,513, per contract, for a day trade, and a further $10,750, per contract, to hold that contract overnight. Both requirements are up 24% from a week ago. For investors holding hundreds of contracts, that's a difference of hundreds of thousands of dollars.
Silver is much less costly than gold, but gold's margin requirements are less than half of silver's. The higher margins are a deterrent to new investors looking to enter the market.
Apparently, to manage its exposure during the parabolic move higher (and the shift from 'Smart' to 'Dumb' money), MF Global (which is one of the big Futures trading houses) raised its margin requirements significantly higher than the CME did. MF Global, run by former Goldman CEO Jon Corzine, hiked its silver margin to $25,397. Consequently, MF Global's margin requirement is 175% of the CME's requirement. The result … a rush to exit.
While the US Equity Indices have broken out above recent highs to continue their up-trend, I hear traders complain that this hasn't been an easy market to trade.
On one hand, you'd think that a straight-shot bull run higher would feel as safe as the kiddie rides at the amusement park. On the other hand, sagging internal breadth, divergences, and the impending end of QE2 have triggered cautious instincts in many professional traders. As a result, many are selling strength, and end up under-invested during the next push higher.
It's been even more challenging for the Bears, who keep trying to identify and sell a top in this market. However, there's been little selling follow-through. My guess is that because so few people are fully invested in the equity markets, each dip (no matter how small) seems like a buying opportunity to someone.
So, how long can the markets continue to produce these straight up moves to new highs? While the answer would seem to be "indefinitely", we know that's not realistic either. This seems a lot like the market did from December through February, where we barely saw a red day; but you couldn't help wondering each day if this was the top.
A Little Politics and Economic Policy.
On a side note, Fed Chairman Bernanke held a press conference last week. It was the first ever press conference immediately following a Federal Reserve meeting. Historically, the Fed has released minutes of their meetings about three weeks afterwards. Now, they expect to hold these sessions after every meeting.
On the surface, Bernanke's comments reiterated that the Fed was resolute in their intent to stop QE2 and doesn't desire to reverse the current trend of inflation or a weakening dollar. What caught my eye, however, was how Gold and Silver spiked as he spoke.
It is worth noting that the U.S. Dollar has fallen 31% so far this year compared to Gold. Likewise the Dollar has fallen 25% against the Swiss Franc (which many consider the gold standard of Fiat Currencies). For what it is worth, the Dollar Index is barely a percentage point above the all-time lows set before the financial panic in 2008.
While the US Equity Indices have broken out above recent highs to continue their up-trend, I hear traders complain that this hasn't been an easy market to trade.
On one hand, you'd think that a straight-shot bull run higher would feel as safe as the kiddie rides at the amusement park. On the other hand, sagging internal breadth, divergences, and the impending end of QE2 have triggered cautious instincts in many professional traders. As a result, many are selling strength, and end up under-invested during the next push higher.
It's been even more challenging for the Bears, who keep trying to identify and sell a top in this market. However, there's been little selling follow-through. My guess is that because so few people are fully invested in the equity markets, each dip (no matter how small) seems like a buying opportunity to someone.
So, how long can the markets continue to produce these straight up moves to new highs? While the answer would seem to be "indefinitely", we know that's not realistic either. This seems a lot like the market did from December through February, where we barely saw a red day; but you couldn't help wondering each day if this was the top.
A Little Politics and Economic Policy.
On a side note, Fed Chairman Bernanke held a press conference last week. It was the first ever press conference immediately following a Federal Reserve meeting. Historically, the Fed has released minutes of their meetings about three weeks afterwards. Now, they expect to hold these sessions after every meeting.
On the surface, Bernanke's comments reiterated that the Fed was resolute in their intent to stop QE2 and doesn't desire to reverse the current trend of inflation or a weakening dollar. What caught my eye, however, was how Gold and Silver spiked as he spoke.
It is worth noting that the U.S. Dollar has fallen 31% so far this year compared to Gold. Likewise the Dollar has fallen 25% against the Swiss Franc (which many consider the gold standard of Fiat Currencies). For what it is worth, the Dollar Index is barely a percentage point above the all-time lows set before the financial panic in 2008.
Gold continues to receive the headlines, yet silver is really moving.
Bespoke posted a chart that highlights how remarkable silver's run has been.
Had you invested $100 in silver ten years ago today, your investment would now be worth $1,037. A $100 investment in gold would be worth about half that at $569, and a $100 investment in the stock market (S&P 500) would be worth just $107.48.
Gold continues to receive the headlines, yet silver is really moving.
Bespoke posted a chart that highlights how remarkable silver's run has been.
Had you invested $100 in silver ten years ago today, your investment would now be worth $1,037. A $100 investment in gold would be worth about half that at $569, and a $100 investment in the stock market (S&P 500) would be worth just $107.48.
