Thursday, March 5, 2009

Shorting Silver Looks Promising; March 5, 2009

While I was wrong on the stock market call from last post, I do understand that trying to pick a bottom in a wave 3 down market is a fools errand. I still have some small call option positions in place, but I have no confidence in adding a heavy long position now. The market still looks poised to fall more. And the short trade is quite crowded and negative sentiment extremes are being reached, so the risk of shorting is way too great.

So I look to other markets. Gold and silver look very bearish and very promising. I am short both metals. Silver shows the clearest impulse pattern from its peak. Attached is a 30min mini silver chart show a clear 5 wave drop from $14.62. It's now correcting that drop. If I'm right, it should be on its way to breaking its previous low at $8.47. So that's a 36.5% minimum fall from current levels ($13.30). The maximum stop loss area for this trade is the previous high at $14.62. So I'm risking 10% to make at least 36.5%. That's a risk/reward on a high probability trade I'm all over.

The rally should halt around the $13.26 - $13.80 area. Once it tops and reverses again, the fall should be huge, fast and furious because it should be a 3rd wave.

I'm short silver and gold with a medium sized position.

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