Friday, June 24, 2011

BUY ZSL $19.05 -- Silver/Dollar Charts

This morning I doubled my position in Proshares Ultrashort Silver ETF (ZSL) with this buy at $19.05.  A reader wrote to inquire about the possible upside on ZSL, I got to looking at it, and what I saw convinced myself to buy more.
Click on any chart to ENLARGE
In considering the possibilities for ZSL I made this 6 month daily chart and noted some of my observations. At what appeared to be various possible destinations upside, I provide the corresponding low price that XSLV traded that day. I have a general idea how fast and far silver may drop from here and wanted to compare it with the possible price appreciation of ZSL.
I also drew a trend line on the True Strength Index (TSI) indicator to assess the threat of a trend line break sell signal, and observe that the TSI is not currently making a negative divergence (that is, current TSI reading is higher than the previous high TSI reading of 0.24).
Also, there are various moving averages that will act as resistance to upward price movement. The 50 dma appears to have been conquered. The 100 dma is overhead at about 23.71 and should ZSL make it to the 200 dma before the correction in silver ends, I estimate that resistance level to be about  39.50.
Finally, a look at the daily charts of, on the left, the US Dollar continuous contract (DX), and on the right, the Silver continuous contract (SI). The idea is that if the dollar goes up, silver will go down and the challenge is to assess whether it is reasonable to expect this price movement to occur in the near future.
In brief, these two charts do convince me that the upside expectation for ZSL is reasonable. The silver chart shows that the overall pattern has played out exactly as I expected and wrote about a few days ago. Namely, the parabolic rise blows up, a reaction rally creates a trend line that is finally broken to the downside.  Then a bear flag forms just under the former trend line - which is a second attempt to rally silver price. The previous trend line of the reaction rally acts now as resistance, not support, to upward price movement. Then the bear flag fails with price dropping sharply lower.
On the dollar side, price is trying to get through the 100 dma. If successful on a closing basis there is a decent chance the dollar could make it to the blue 200 dma overhead.  If the dollar should make it all the way up to its 200 dma, that should be the bottom in this silver correction and definitely a time to sell ZSL.
My TSI trading record has been updated.


  1. Thanks a lot for the update. I hope i can cover some losses. Please keep update.

  2. Thanks for the insights John.

  3. Thanks John,

    I really appreciate, you help.


  4. good evening john,
    I thought you might have taken profits on ZSL today only to learn you bought more. I think it's fair to say silver will probably drop a little more and I'll probably have to adjust my trendline. It looks in danger or breaking down though. I'll just have to hold my breath and watch and hope my silver mining stocks don't get hurt too badly. ECU was just starting to look good. M-

  5. Thank you Tracy, Anon and Gilbert.

    Monty - this is the D-wave. If you are a longer term investor with a lot of guts and not much concern for total return, you can hold through it with your silver stocks and by next December be a verified genius.

    The trading fools, myself at the head of the line, will try to capitalize on the opportunity that we have now for the next 2-3 weeks, then turn bullish at the daily cycle bottom presumably around mid-July.

    There are so many ways to skin a cat that for anyone to presume they have it all figured out, again, beginning with myself, is a fool.

    I wish you good fortune and admit I do look forward to the time you concede that indeed I nailed this perfectly. LOL

  6. Hi John,
    thank you for your analysis on ZSL. Do you think it would be wise to wait to see what happens on monday or tuesday and thereafter take positions in ZSL. Is the trend for ZSL just UP from now till mid July or could there be a price drop next week which would give us a good entry point.
    Please elaborate / advice.
    Thank you once again for your great work and advice.

  7. Hi John,

    I just stumbled upon your page and instantly bookmarked it:)

    Iam a young guy new to cycles and charts analysis. Any good books you recommend?

    Many thanks for sharing your knowledge and insight!!


  8. I had a similar temptation to double my position too, but I decided against it. I'll wait and see on Monday what happens. Silver seems to rarely do what I want it to!

  9. Discovered your Blog few weeks back. Routinely check in to read to read your new posts. Thanks for sharing your knowledge.

    Chris T.

  10. Hi John,
    What would be your target price for silver if the dollar index hits the 200dma?

  11. John. I too, doubled my position on ZSL. I feel confident re the very short term, but, my overall analysis gives me some real negatives. At first glance I got an objective of $32.70, based on the flag marking the half way point. However, here are some considerations that give caution.
    1. Weak volume on breakout from flag.
    2. Negative divergence in Slow STO.
    3. OBV and A/D are slightly negative.
    4. Now at upper Bollinger band.
    5. Bollinger Band width is only average.


  12. Thank you all for contributing your recent comments, observations and questions. We can all benefit from each other - I like that.

    I think silver has a reasonable shot at reaching the mid 20's next month. I have no idea what ZSL will do hour by hour next week. I have not used TA much in making either of my two purchases of ZSL.

    TSI and other Technical Analysis tools have not, IMO, been super helpful recently. ie if I had relied on them I doubt I would have a single position in ZSL, let alone a double.

    Rather, my buy decisions have been influenced strongly by the price pattern action itself. Parabolic top, sharp fall, bullish reaction rally with failure, bear flag rally with failure, and here we are today. Throw in a pennant continuation pattern that likely will fuel downward price behavior.

    And cycle analysis that suggested this is getting very late in gold's intermediate cycle for a new top, and the strong probablility that it is time to move south toward the final low of the gold intermediate cycle.

    Also, the notion that the final *daily* cycle of gold's intermediate cycle would be left translated - therefore gold would peek soon if it had not already.

    And finally, the fundamentals are that Ben said he is going to stop printing money as promised on June 30. His money printing has been holding the markets up. The big boys have been encouraged to go get money at 0.25% interest and then chase assets higher using their fresh cash.

    No more fresh cash and there is going to be a problem of not small proportion.

    So both times I just pinched my nose and bought.

    There will be resistance points along the way for ZSL, of course. Moving averages, trend lines and so on. And ZSL will react to these resistance points by first failing to get through them I imagine. But ultimately I think a person holding this until mid-July will do very well. I hope I do. And I hope you do, as well!

  13. John:

    Do you think GLD reaching 150 DMA a good point to sell ZSL?

  14. hkc - that should work well. Technically I have since learned that gold's 3 previous intermediate cycles bottomed at the 144 dma. Anyway, I think it more likely that this final cycle bottom at/near the 200 dma - which is only $25 or so dollars lower than the 144 dma. The way this game is played, when everyone thinks the same thing everyone finds out they are wrong. The 200 dma will be the last straw.

  15. Thanks for the insight as always John.