So you want to "BTFD" on Silver eh?
You might want to look at this first....
That could be a problem.
Price, as it stands right now, is at a volumetic null. This is a logical place to get involved but if you do it I would be extremely careful under $45 - there's a real possibility that the only real support in that chart is down near $31!
Buyers, especially new buyers of which all of those people are, can very quickly turn into sellers.
Should the $45 level hold then all is good.
But..... don't chase price downward if that level fails. The risk of getting severely damaged on a break under $45 is very real.
Disclosure: No current position - but that's likely to change if the $45 level goes down.
I know, I know, the market only goes one way.
So believe many people.
Those numbers have never been seen before in my recollection - and as far as I can tell (by looking back at the stats), never by anyone else either. In fact that opening print is more than double the previous all-time high.
These are retail CALL buyers folks - not institutions.
Then there's the CBOE $CPCE index (same deal but including institutional buyers) which reached an 0.32 level yesterday - a record going back to at least 1997.
Again, these are monstrous contrary indicators - they show that "retail" is not only fully involved in betting on "higher prices" in the stock market but is positively giddy and bubbly about the stock market.
Is this a guarantee that things are about to get bad? There are no guarantees.
But that, coupled with the VIX SELL signal that we got two days ago (a rare indicator that I covered in my nightly technical video) if you're not being cautious here you're asking for it.
Here are the two most-recent VIX SELL indicators (that is, go long volatility, and short the market):
The January signal was followed by a ~8% selloff.
And here are the three previous indications of the same signal:
May '08 Options expiration was a local top that led to a nasty decline. So was the end of February of 2008, and so was the end of the year in 2007.
There was one failure in the last several years - on 10/13/06 we got a signal but that did not lead to a material decline.
But on 10/13/06 we did not have the sort of giddiness in the other sentiment indicators - this time we do and at present those indicators are at levels that exceed what we saw during the parabolic blow-off in 1999 and 2000.
This latest "recovery" from the January sell-off has every characteristic of a parabolic blow-off. These can go further than you would ever imagine, but be warned - with sentiment where it is now, along with the utter lack of anything approaching fundamental support for these valuations, it will take only one little "triggering" event, much as it did in March 2000, for the run to the exits to occur.
Oh, and lest you think the "Wise Guys" don't see it, have a look at the /ZN today, which has gone vertical the last few hours. That's big boys selling into this strength and buying the Treasury curve.
There has been a tremendous correlation between dollar weakness and the stock market's strength stretching back to when the initiation of the apparent dollar carry at the beginning of last year (2009.)
But starting in December this correlation broke down, as the following chart shows:
Here's the concern, as outlined by a zoom-in:
Note that we went - almost instantly, and with very little "transition" - from a negative correlation (that is, dollar up = stocks down and vice-versa) to the inverse, but with a few day delay in the stock market response.
Why is this important? Primarily because of this chart:
Note the support shelf. It's rather important, and this morning it broke - hard.
Now this may be nothing, but that move upward may also be nothing more than a retrace - otherwise called "a bounce" - from the more than six-month decline.
If it is, we are about to enter a really nasty downturn for the dollar, and if the correlation stays positive instead of inverted with the stock market, equities may well get a truly ugly surprise.
This pattern is somewhat nascent, but it ties in with the huge inverted head and shoulders that is found in the long bond, shown here:
Sharply-higher long rates (in this case, targeting 6.8%) are not positive for equities at all. Besides the fact that higher long rates compress multiples in the stock market (due to the yield being better on bonds) it also impacts borrowing costs for everyone.
This move would also imply 30 year mortgage rates around 7.5%. A current $200,000 loan financed at 5% produces a payment of $1069.18 for principal and interest. The same payment financed at 7.5% buys only a $153,868.48 house, or a nearly 25% additional decrease in every home's value in America.
Does this outcome have to happen? Of course not. But the "stars are coming into alignment", with oil recently breaking a pennant flag that targets $100/bbl:
All-in-all this appears to be a time to be extra-vigilant, to protect profits and if initiating new long positions to do with both tight stops and smaller-than-normal size.
With earnings kicking off this afternoon, complacency (as measured by the VIX) back where it was in the latter half of 2007 and everyone prognosticating "great things" for both the markets and economic recovery, divergences such as this are unwise to ignore.
History says that strong upward moves do not die on bad news - they die on good news that "isn't good enough" when traders find themselves without proper protection for their positions, lulled into complacency and salivating at all the "long side" profits they are sure will be imminently forthcoming.
Be very cautious of any thesis you have on continued advancement of the market based on "dollar depreciation."
This is the correlation chart from today thus far:
This may be a one-day anomaly. But it is the most-serious break of the correlation that has been deteriorating for the last two days.
If it breaks entirely the reaction in the market is likely to be extremely violent.
Carry-based asset "appreciation" is inherently unstable, much as is juggling bottles of nitroglycerine.
All is well provided you don't drop one.
Forewarned is forearmed.
