Russian Roulette Anyone?

By Raghu Gullapalli 



After an extremely volatile week, what can we expect from silver in the week ahead? If you’ve read some of the same reports in the blogosphere as I have, you may want to try your chances at Russian Roulette -- your odds of success are higher.

There are a couple of metaphors I especially enjoyed:

• “Dead Cat Bounce”
• “Gap and Crap”
• “Silver takes the stairs up and the elevator down”

At the end of its move up, silver was on a rocket. The entire world was in a frenzy, from the taxi drivers to my mother. That was the big clue.

“Sell on excitement”

That’s exactly what George Soros and Carlos Slim -- among the most notable -- did. They started exiting their silver position when it made new all time highs. In some ways the death of Osama bin Laden may have been the catalyst many experienced investors sought. One last spark to bring the market to a fever pitch.

Now what?

Well after a week where silver lost almost 25% of its value, it's hard not to take the value of Risk Management seriously.

This morning Silver Wheaton (SLW), the miner, came out with its quarterly earnings. According to SmartStops.net, the short-term stop is $33.81 and the long-term stop is $31.73.

iShares Silver Trust (SLV) may experience the aforementioned “Dead Cat Bounce” wherein the price bounces up from last week’s lows, making a woeful attempt to break the downtrend and then continue downward.

Editor's Note: This content was originally posted on SmartStops.net.

Silver? To Buy or Not to Buy, That is the Question

By Raghu Gullapalli 


In the past four trading sessions silver has come off more than 20%, leading some to believe that silver’s bullish run is over. After all, some of the world’s savviest investors, like George Soros and Carlos Slim, have been selling their stakes in silver.

Why the sudden reversal? Part of the reason is the new margin requirements instituted last week, and the other part is silver’s correlation to crude prices and the larger market.

I tend to think of this pullback as a long overdue correction for an investment that was getting a little too vertical for comfort. Or to be technical, overbought.

This correction and the new margin requirements should drive the pretenders and speculators out of the market. This sharp move down will no doubt cause substantial panic among those who bought near the top, allowing value investors an opportunity to take advantage. Silver is not just a precious metal but an industrial one as well. It's the top choice of solar companies -- like JinkoSolar Holding (JKS), First Solar (FSLR) and Trina Solar(TSL) -- for use as conductors.

A value investor could look to possibly invest in silver in the days to come after the correction ends. But make sure it begins to trend upwards again before you enter the trade. We never want to try to pick the bottom or the top, that is almost always a lose-lose strategy.

That’s why its always important to have an intelligently adjusting risk strategy to protect your profits and minimize your losses. According to the charts at SmartStops.net, the short-term exit alert came on May 2, 2011 at $43.60 for SLV. Given today its trading at $35.78, that’s already a $7.82 per share protection of profits. If one were to see the trend starting to reverse and wanted to play this bounce, it would be paramount to have stops in place . SmartStops is showing that the optimized exit point for today’s market (it adjusts daily) for SLV in the short term is $36.69, and long term $33.53 dependent on one's investment horizon.

Editor's Note: This content was originally posted on SmartStops.net.