Look at these ETF Charts SLV ZSL Before Calling a Top in Silver

Apr 21, 2011: 10:40 AM CST

Are you trying to call a top in silver?

You’re not alone – I’ve been picking up on a lot of chatter in the blog (and email) world about traders and analysts trying to call that proverbial “top” in Silver “any day now.”

Before you can’t fight the temptation any longer, at least take a look at these four charts – Two Daily and Two Weekly – of major Silver ETFs SLV (bullish) and ZSL (ultra-bearish).

Let’s start with SLV Weekly for our reference:

In this post, I’ll specifically be focusing on a few key chart points:

1.  Bernanke’s “Jackson Hole” Speech that introduced us to QE2 on August 27, 2010
2.  The “Weekly Pullback” to the 20 EMA in January 2011
3.  Volume and Momentum Insights

I need not remind you that Bernanke’s QE2 speech (“We will do anything to prevent a second recession”) helped kick-off the inflationary commodity rally we’re seeing now – but that’s completely another story.

Second, the “Weekly Pullback” in January was an interesting topic, as the daily chart (as you’ll see) had plenty of warning signs of a potential “top” and “reversal” that was shortable … but wound up being nothing more than a clean and easy pullback (retracement) to the rising 20 week EMA – an intermediate term BUY signal.

In terms of momentum and volume, we’re seeing CONFIRMATIONS from both instead of negative divergences on both the weekly and daily frame – that is a sign of likely price continuation.

Now let’s flip down to the daily chart:

Again, we can see the “Blast-off” in price at the end of August which coincided with Mr. Bernanke’s QE2 announcement (which would begin officially in November, though markets tend to move ahead/in advance of actual events).

The MAIN IDEA with the daily chart is what happened in the run-up to January 2011.

Generally, if you’re going to call a top, it’s best to wait for confirming signals of potential trend reversal.

These include lengthy negative divergences in both volume and momentum (which were present as shown) and then triggers from price in the form of breakdowns under rising price trendlines (hand-drawn) or moving averages (such as the 20 or 50 day EMAs as shown above).

So, if you’re going to call tops, it’s best to wait for triggers that form AFTER divergences or some other non-confirmation are present.

Even with all that bearish wind at traders backs, SLV (silver) did not reverse, but instead just pulled back to the rising 20 week EMA (higher timeframe support) and launched up from there.

This is a key point in Multiple Timeframe Analysis – wherein the daily (or short-term) chart can signal a clean reversal… which turns out to be nothing more than a standard pullback on the Weekly (higher) frame.

Anyway, with Silver shaking off that potential reversal signal in January, the next BUY signal came on the breakout to new highs in February above $30 per share (roughly $3.00 per ounce).

I’ve posted many times that the two leading trading strategies in strongly up-trending markets are retracements to rising EMAs/Trendlines or price Breakouts to new chart highs.

What we’re seeing now is the remainder of the current rally which – again – is confirmed with bullish surges in volume and momentum – these are things you do not use as bearish short-sell catalysts.

A main point from the current chart is that, while there is not a corresponding buy signal (as in, no breakouts above pre-existing resistance and of course no pullback to support), there is – as of this moment – NOT a bearish short-sell signal (given that price is rising and overextended… but overextension alone is not a reason to short).

Now, let’s flip the tables and move away from the Bullish SLV chart to the Ultra-Short ETF – ZSL:

Before getting too deep into the chart, keep in mind ProShares announced a 10 to 1 Reverse Split for ZSL on April 14th, 2010.

The long-term fate of leveraged inverse ETFs almost always means a trajectory headed to $0 per share … which is why they will have to CONTINUE reverse-splitting most leveraged inverse ETFs every few years (particularly if there are strong rallies in the underlying market) … but that too is another story.

I’m really showing this chart for comparison purposes, and as a reminder that double or triple leveraged inverse ETFs are for very short-term (perhaps only intraday) trading purposes – you should not invest long-term in leveraged inverse ETFs.

The main point of this chart is the literal surge in volume in 2011 – which one would assume is a rush of risky/aggressive traders seeking to profit from a potential top in silver.

So far, that has been a losing bet, as seen from the daily chart:

Again, I’m just going to focus on a few things.

First, when Bernanke announced the initial QE2 plans in August 2010, ZSL sold for $140 per share.  Today, it’s at $15 per share.  That’s a 90% decline and – mark my words – ZSL will NEVER see $140 per share again (without a reverse split).

Let’s assume silver fell from $40 per ounce to $20 per ounce – a 50% decline.

One would thus assume the ZSL – a double-leveraged inverse fund – would increase 100% which is an enviable gain.

$15 per share times two (increased 100%) is $30 per share.

Oops.  While your position dollar value did double, $30 per share is no where near $100 per share seen in September.  Price will not make it back there.

Anyway – again this topic is a huge issue for another conversation, but it underscores the importance of reading an ETF’s prospectus (and doing your research) carefully before purchasing an ETF.

Moving on – the surge in volume from March to present either indicates that more people are now aware of the ZSL fund… or that more people are finding shares just too irresistable to snatch up a position that will rally a large percentage gain (but NOT large share price gain – certainly NOT back to $140 per share or even $100 per share) in the event Silver does top soon.

Now going back to the main point – our weekly pullback phase in January (when it looked like Silver had topped on the daily chart) led to a ZSL move from $40 to $50 per ounce (a 25% gain) but now price is 70% lower ($50 to $15) and still declining.

To make a long story short, any type of trend reversal strategy is inherently more risky than playing for trend following strategies – given the foundation of technical analysis is built on the notion of trend continuity.

Martin Pring (Technical Analysis Explained) defines Technical Analysis as:

“The Art of identifying a trend at its earliest stages and riding that trend [trading in the direction of the trend] until the weight of the evidence proves that the trend has reversed.”

To me, “weight of the evidence” takes into account a variety of factors including sentiment, momentum, volume, trendlines, moving averages, reversal candles, exhaustion gaps, and many more concepts/indicators.

Right now, we’re seeing “price overextended” (a vague term) and high bullish sentiment.  That’s not the weight of the evidence.

We’re NOT seeing divergences, trendline breakdowns, EMA breakdowns, etc.  It would be much safer to short silver if we started to see some of those… but even then we DID see those in January 2011 that was nothing more than a weekly chart pullback ahead of the recent rally from $30 to $45.

One of technicians’ favorite saying is the well-known:

“A market can remain irrational longer than you (your account) can remain solvent” along with

“Trends tend to go higher (or lower) than almost anyone thinks they can go.”

So until we start seeing some material chart evidence of a reversal according to the “weight of the evidence” model, it’s probably a good idea to resist the urge to be a hero and call a top in this powerful metal until we see some objective sort of sign of reversal other than “it’s really expensive and overextended.”

Unless you’re required to trade Silver, there’s probably better reward/risk opportunities elsewhere.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

  • Digg
  • del.icio.us
  • Facebook
  • E-mail this story to a friend!
  • StumbleUpon
  • Technorati
  • TwitThis
50 Comments

50 Responses to “Look at these ETF Charts SLV ZSL Before Calling a Top in Silver”

  1. Terlyn12001 Says:

    So true. One thing I've noticed, though, is that each pullback is narrower on a chart; I'm speaking of the triangle pullbacks.

  2. Linux5299 Says:

    If SLV falls from $44 to $20 by falling 1% each day for 80 days, $20 = $44*(.99)^80.

    Then ZSL would rise 2% each day for 80 days and thus would rise from $15 to $15*(1.02)^80 = $73.

    It is called compound interest and it is you who do not understand how daily leveraged ETFs work.

  3. Guest Says:

    great post corey

  4. Corey Rosenbloom, CMT Says:

    That's assuming silver does make those moves – and I was making a simple point instead of bogging the post down in complexities.

    Yes, with sustained daily moves, the compounding will take over and there's no way silver will fall from $40 to $20 in one day.

  5. chaunceyherbie Says:

    Nicely done, Corey.

    Here's my linear regression perspective. When the music stops, only the Parabolic Shadow knows.

    Good luck, CH

  6. Corey Rosenbloom, CMT Says:

    Haha I love it!

    True – I think a lot of us are looking between $48 and $50 for a key turn but if we continue blasting through $50 and on to new lifetime highs (above $51), it will be a whole different ballgame.

    Thinking back to oil in 2008 – few if anyone projected $147. $130 was high. $140 was really high. $145 was impossibly high. $148 was the final end. Then the collapse took us under $40 within a few months later. Parabolic moves never end well, but the truth is they go on much longer than most people think they can.

    If only the shadow talked….

  7. Doctorcoffey Says:

    Nice Work.

  8. aviat72 Says:

    Cory,
    In case of leveraged ETFs, which are in a parabolic move up (or inversely, in an asymptotic decline), the volume information can be misleading. This is because for the same exposure, the number of shares goes down (or inversely, up), as the uni-directional move develops. It would be interesting to see a price normalized volume graph of these ETFs, especially ZSL.

  9. winter Says:

    cory,

    excellent work. ultimately all about patience.

  10. theGman Says:

    goin to $100

  11. Coinralph Says:

    I own shares of SLV at $30.56. I trail my position with protective Put options. I currently own the Jan. 2012 40 strike Put contracts. Sure, you cut into your gains somewhat, but you are insuring your position against major losses. When SLV hits $48 I will roll my Puts up to the $45 strike. I sure sleep good at nite.

  12. Minion Says:

    Outstanding analysis. I, too, can't believe my eyes when watching this parabolic moves but the momentum divergence and trendline breakdowns are not there. “Price is never too high to start buying or too low to start selling” -Jessee Livermore

  13. Robertoestevez1 Says:

    Without any kind of doubt, a very good technical analisys. But remember that all those EFT are devivatives from the silver itself. If you wan't answers to your questions and gesses, look at the fundamental analisys of the silver and reserach on what's happening to the demand/suply and even the positions in the markets of the very big traders.

  14. Macandmurray Says:

    Wow… being on the wool stocking supply side of silver as defined in geologists charts on http://www.SilverMiningClaims.com, I really don't have enough seconds left in my life to even try an understand the financial side of silver silk stocking silver, other than to tell you that apparently there are a lot of “market wizards” out there that don't know a mine from a hole in the ground and that historic AG is still recovering from “big media” under-reporting the William Jennings Bryan “Cross of Gold” speech when he was running as a Democrat for President. I am so sorry to be “hillbilly” stupid but how is it that silver ETFs are any different than buying paper stock certificates on the margin, a practice that the SEC supposedly banned after the FIRST Great Depression?

    Barry Murray

  15. Mike Mcmade Says:

    What happens when QE2 is over in June?
    Will Silver and Gold pull back greatly?
    Will there be a QE3?
    Does the US need to keep inflating to keep out of going into another recession?
    If there is QE3 can we expect another jump in

  16. bones327 Says:

    Before I bought any ETFs or tried to calculate where the top of the market is, I would say that you should be accumulating silver coins, like American Silver Eagles or 90% silver coins like Kennedy halves or Morgan or Peace Dollars. Silver Eagles are up over 140% in the last 15 to 16 months, with no apparent top in sight. Jim Rogers is very bullish on silver, but says if it gets to triple digits this year, it will mean that the dollar has collapsed, silver will be parabolic and there will be a “bubble;” and you will want to short silver. However, he does not expect that to happen this year or for the next several years. Whatever happens to the dollar, you won't lose money, if you have real (hard) currency in your pocket.

  17. bones327 Says:

    I recently read a comment said to be a quote from one of the Rothschilds. He said (and I am paraphrasing to capture the sense of what I read) “I always make money because I don't try to buy at the lowest price and I don't try to sell at the highest price.”

  18. honestann Says:

    JPM will smash down silver prices through Tuesday given the super-light volume over the next few days PLUS option expiry on Tuesday (JPM can never resist these situations). Then silver will take off again, either immediately on Tuesday-Wednesday, or by the following Monday at latest. That's how I see it.

  19. Richard Whisler Says:

    Agreed! Good Call!

  20. Bill Creech Says:

    I think SILVER is going to the moon. Hang on Billboy

  21. Richard Whisler Says:

    Like your idea! But Oil can be pumped easily! Silver production is being ramped up because of high prices!
    But due to artificially suppressed prices, there are few “pure Silver Mines!” Most Silver production is secondary to “Base Metals!” But rapidly increasing supply is unlikely!
    Also, Silver is under increasing demand from Industrial(including “new applications”)
    My point being that a collapse after the “Parabolic move in Oil” is not only unlikely, but nigh impossible!
    I do agree with the strategy of spending small amounts of money on Puts! Watch premiums carefully, though!

  22. Roy Douglass Says:

    The only reason silver rallied on Thursday was because we were going into a holiday weekend. We should open and trade higher on Sunday night and then we could see a 2 drop on Monday morning.

  23. David Says:

    Why is the volume in ZSL so much greater than in AGQ? I guess people are shorting it but my broker doesn't have shares to borrow.

  24. easystocksand shares.com Says:

    I am interested in your view of the price of silver. Of course gold has gone to far and now it looks like silver might be following it. So looking at the first chart we need to keep it simple. There are still good stong candles which is a sign silver is still bullish but what catches my notice is the volumes. They are very strong. So to answere the question – Are we at the market top? No I don't think so. Not yet anyway bit I expect we should see a small correction or at least a consolidation pattern soon.

  25. ERWIN Says:

    silver is not ENEN BEEN INFLATION ADJUSTED SO STOP THE SHORT CRAP STAY LONG UNTIL YOU SEE SOME THING THAT TELLS US A CORRECTION IS NEAR

  26. Buzzi Says:

    is the general concensus that if the market drops, silver won't?

  27. Silverman Says:

    Silver is going to go to triple digits before it reverses. No-one is adjusting prices for inflation…In 1980 Silver top was $50.00…that would be $120+ in today's pricing. I think JUNE is going to be judgment month for Silver and Gold. If QE3 is announced DOUBLE-DOWN. If no announcement and QE2 ends then SELL SELL SELL the metals and long the dollar. Short gold and silver.

  28. Silver sword Says:

    Oops. strike one.

  29. Bbyballs Says:

    The 1980 high is a bad data point to use. The Hunt brothers had cornered the market for silver and ran it up on the short sellers.

  30. Poster's Paradise » Look at these ETF Charts SLV ZSL Before Calling a Top in Silver Says:

    [...] afraidtotrade Posted by ipso_facto @ 3:34 pm :: Uncategorized Comment RSS :: Trackback URI [...]

  31. Look at these ETF Charts SLV ZSL Before Calling a Top in Silver | Whats Hot Says:

    [...] Look at these ETF Charts SLV ZSL Before Calling a Top in Silver [...]

  32. The small boob girl Says:

    I bought some silver coins from APEMX about one month, but I got an email from them yesterday saying they will buy back my silver $3 over the current spot price because their supply is running really low. I am thinking if this is the end of silver rally, why will one of the biggest gold and silver dealers in the US will ask its former customers to sell the silver back to them?

  33. A34351945 Says:

    Ps explain what QE3 is, and QE2.

  34. Rssfeeder2010 Says:

    I went against your advice, thank you, I made a lot of money!

  35. fatfighter59 Says:

    Actually not. They changed the rules mid stream when the Hunt Bros. said they were going to take possession and not having enough silver, they manipulated the market such that the Hunt brothers had to sell but no one could buy (something similar to that) – they got #%@$ed!

  36. Barry Murray Says:

    Come on guys… as a silver producer, who is sooooo stupid I cannot compete with the Wall Street Wizards , as mentioned on my http://www.TheMiningInvestor,com... when it comes to silver in hand… well the bright boys have a problem.

  37. Abc123 Says:

    Well, you were about 12 hours ahead of the curve so to speak. Tell me… did you meet the margin call(s)?

  38. Abc123 Says:

    Close!

  39. SilverSurfer Says:

    “Unless you’re required to trade Silver, there’s probably better reward/risk opportunities elsewhere.”

    Interesting… there were *great* opportunities trading the AGQ and SLV ETFs… notably 10:1… all of which were realized before averages and trendline trade mechanisms signaled a short entry.

  40. a line wedding dresses Says:

    Hello I am so delighted I found your site, I really found you by mistake, while I was watching on yahoo for something else, Anyways I am here now and would just like to say thank for a tremendous post and a all round entertaining blog. Please do keep up the great work.

  41. Cheap Oakley Sunglasses Says:

    Time and creative minds lead to Perfection — the right answer to the success of Oakley Half X Sunglasses which excel at the art of the perfect open-edge lens architecture in the Oakley Half Jacket Xlj. We provide Oakley Half X sunglasses that can give you vision with no frame rim or blocking any downward view. Believe it or not, Oakley Half Jacket Xlj are the most demanding sport and fashion-oriented sunglasses in the world. Sportsmen have won more games with our Oakley Half X Sunglasses than without any sunglasses. Oakley Half Jacket Xlj technology is a milestone in sunglasses manufacturing skills. Our Oakley Half Jacket Xlj can maintain good vision clarity and provide good eyesight protection. The lens is easy to keep clean. Dirt and dust particles won't cling, for it can efficiently eliminate static electricity. Welcome to place orders.Free shipping worldwide.
    In outdoor activities place, especially in the summer, many people are used to block the sunglasses, in order to reduce the fatigue of the eyes caused by strong sunshine.Do you want to have a pair of fashion and cheap oakley sunglasses?Fake oakley is your right choice, becasue all the Fake oakley sunglasses can save 75% discount off in our website ,whicn can help you to save a lot of money.Hurry to choose yourself Replic Oakley sunglasses.
    We must have a pair of Oakley Jawbone Sunglasses as must-have travel items in summer,because the ultraviolet is so strong ,we need it to protect our eyes. If you are looking for cheap sunglasses,you can choose oakley jawbone sunglasses outlet.There are a lot of style of sunglasses for your choice, you can find a pair of suitable sunglasses,which is in low price.

  42. Yehuo1314 Says:

    I have been reading this blog
    for ages. Keep up the amazing work you are doing

  43. Jujius153 Says:

    This kind of <a<br>href=”http://www.ukcheapmonclerjacke...“>Moncler
    Women Jackets in Coffee is the latest popular, unique style and very
    fashionable. Once you got it, you will find that it worth paid. Come on and
    join us.

    </a<br>

  44. Sample Stuff Says:

    Very great work here!
    Natural Sleep Aids

  45. John jake Says:

    Appreciating the persistence you put into your site and detailed information you provide. It's good to come across a blog every once in a while that isn't the same outdated rehashed material. Excellent read! I've saved your site and I'm adding your RSS feeds to my Google account.
    cheap Juicy bags salejuicy couture bags sale
    Discount Juicy handbagCheap Juicy handbagsJuicy handbags supplyJuicy handbag supplyCheap Gucci bag sale

  46. old united states coins Says:

    old united states coins…

    Look at these ETF Charts SLV ZSL Before Calling a Top in Silver | Afraid to Trade.com Blog…

  47. water damage restoration Says:

    water damage restoration…

    Look at these ETF Charts SLV ZSL Before Calling a Top in Silver | Afraid to Trade.com Blog…

  48. toto drake ii toilet review Says:

    toto drake ii toilet review…

    Look at these ETF Charts SLV ZSL Before Calling a Top in Silver | Afraid to Trade.com Blog…

  49. toilet facts that may scare you Says:

    toilet facts that may scare you…

    Look at these ETF Charts SLV ZSL Before Calling a Top in Silver | Afraid to Trade.com Blog…

  50. Porky pig Says:

    Hi Corey – Just found your article today (10/18/2013). Wow! That was indeed the top back in April. Excellent work, and you have a new follower!

Leave a Reply