Silver Market Update

by Clive Maund
CliveMaund.com

Having finally got the time machine operational at last we zipped forward a week, saw what happened to silver last week and then zipped back to last weekend and wrote the last Silver Market update, as you will see when you compare the year-to-date charts for silver from last weekend's update with the latest chart showing what actually happened to silver as the week unfolded. Hearty thanks to Doc and Marty for the inspiration for this machine – this is how it should be used!

More seriously we now have to consider the implications of last week's plunge which was even more brutal than we had expected, and we were expecting it to be bad. On the year-to-date chart shown above we can see that the C-wave smash phase is now underway in earnest, and that it has already crashed key support at the lower boundary of the large top area shown on the 6-year chart below. With the MACD indicator not yet at the sort of extreme readings that we saw at the tail end of the May smash, and volume high but not yet climactic, more severe downside action is on the horizon regardless of brief intraday "air pocket" bounces that might be occasioned by the short-term oversold condition.

We are now entering a deflationary bust phase that politicians have been trying to ringfence since 2008. Now they are outmatched and outflanked and totally out of options, which means that we should see – and it started last week – a broad based commodity and stockmarket crash, and therefore we should expect the worst with regards to silver. How far could it drop during this phase? – the long-term 6-year chart will help us to determine this.

We has already determined that a massive top area was forming in silver before last week's breakdown, as the chart from last week's update, reproduced below, shows...

If we now look again at the latest version of this chart we can see how, having crashed the support at the lower boundary of the large top area on Friday, silver is now in freefall, and while there is some support in the $30 that could produce temporary relief, the magnitude of the decline on Thursday and Friday against the background of emerging deflationary forces strongly suggests that silver will soon crash this support and continue its freefall even lower – and there is no significant support below the $30 area until it gets to the $20 area. This therefore looks like the downside objective for this decline. Even if we are wrong on this and the decline stops in the $30 area, we will have plenty of time to unload our shorts, as with confidence shattered it won't be going back up again anytime soon – first a base area would have to develop to allow confidence time to recover.

We have garnered massive profits from the strategies we have employed over the past several weeks to profit from a collapse in the silver price, including a near 1000% gain on a ZSL Call, which has included bear ETFs, Calls in bear ETFs, and Puts in selected silver stocks. This started with THE COMPLETE TOOLBOX FOR CAPITALIZING ON A GOLD & SILVER PLUNGE, and continued with SILVER AT THE PRECIPICE, and SILVER WHEATON – the perfect silver stock to short. At this juncture with the prospect of further heavy losses in silver, we are sitting on these positions which are expected to appreciate further. Out of to respect to existing subscribers we would not normally make such a large number of recent articles available to the public at large, but as we positioned ourselves ahead of the start of the crash and are already sitting on massive gains, we can afford on this occasion to be more generous in our disbursements to the wider world.

If you think this nascent crash is just some sort of heavy correction that has has almost run its course, you need to open your eyes. We have already looked at the awful and ominous copper chart in the Gold Market update, which is crashing already and looks set to crater, and now, to get more of a frame of reference for the silver crash, in addition to that provided by the 6-year chart for silver itself, we are going to look at the 3-year chart of the big silver producer, Silver Wheaton.

Silver Wheaton's chart sports a magnificent example of a classic Head-and-Shoulders top. Having spotted this we have shorted it near to the top of the Right Shoulder of the pattern, and our investment is already looking really good. The amazing thing about this chart is that, despite the ferocity of the decline in silver late last week, Silver Wheaton still has not broken down below the neckline of its H&S top – but this is only due to the fact that just a week ago many were still bullish on this stock and it was flirting with its Right Shoulder highs, and as recently as Wednesday it tried to break out above these highs but reversed intraday to leave behind a very bearish "shooting star" candlestick on its chart, so it has had a long way to drop just to get to the lower boundary of its top area. Thus, if you think that the fact that it has not broken down from its top area yet is a sign of strength, you are very much mistaken. After a possible weak bounce from the support at the neckline of the pattern in sympathy with a possible fleeting bounce by silver early next week, the prospect is for an imminent breakdown from the top area that should lead to savage decline, with the H&S top projecting a MINIMUM downside objective in the $20, and if the deflationary downwave unfolding is as bad as that in 2008, or worse, then we could easily see Silver Wheaton back at its 2008 lows in the $2.50 – $3.00 area. So what do you think that implies for the silver price??

Silver longs have already been taken to the shearing shed and royally fleeced over the past few days, just as we expected, and are in a state of shock, smarting from massive unexpected losses, and many are not psychologically disposed to "bite the bullet" and get the hell out before they incur further huge losses. Thus, after already being fleeced they are likely to bleed steadily to death as silver heads lower in the weeks and months ahead. "It will come back" they will console themselves, and they and their cheerleaders will be looking around for someone to blame – the banksters, the cartel, the Comex, J P Morgan etc, who have conspired to cheat them out of their just rewards – anyone but themselves. In life you get what you pay for – many of them took cheap or free advice, and while they may have saved a few hundred bucks by doing so they are now losing thousands – doesn't look like such a bargain now, does it? I remember someone wrote me a couple of years ago and smugly proclaimed that "Fundamentals will always trump technicals" – and added that "Technical Analysis doesn't work anyway because the markets are so manipulated". Oh really? – is that right? – unless you are privy to important inside information that is not known to the markets, it is the other way around – technicals, properly interpreted, will always trump fundamentals for the simple reason that price action, which is the distillation of all known fundamentals, embodies all the news and is the latest information you have on a commodity or stock or whatever. Very often the reason or reasons for a nascent trend are obscure or undiscoverable in its earliest stages and only emerge later, when a large portion of the profit opportunity has already been used up. As for the lame assertion that Technical Analysis doesn't work because the markets are manipulated, I will allow you the reader to be the judge of that after reviewing my calls of the past couple of weeks.

We are not, and never have been, gold or silver bugs. We are here to make money pure and simple, not fool about with dogmas and ideologies, and we are just as happy making it on the way down as on the way up – more so actually as markets drop twice as fast as they go up, and silver drops about 4 times as fast as it goes up. Thus we are perfectly happy with the latest developments.

Reprinted with permission from CliveMaund.com.

September 29, 2011

Copyright © 2011 Clive Maund