Wednesday, July 6, 2011

Sold ZSL at $17.48

OK, that was strike 3 for me. I took off my short silver helmut and trotted to the bench.
I sold my entire position of Proshares Ultrashort Silver (ZSL) at $17.48, about an hour before the market closed today.
In the section on silver in last evening's post I wrote this:

"Silver reminds me of a wild cat - it just does what it wants. If I had to guess I would think it makes it to $36, having begun this rally around $34, then pulls back to the midpoint consolidation area that we see at $35. But I never knew a wild cat to care about what I think, so be warned".

At the time I wrote that, silver was trading at around $35.38.  Sure enough, 4 hours later silver reached $35.96. Then 4 hours after that silver fell to $35.06. I missed figuring the top by 4 cents and the retracement by 6 cents. Not bad. But where was I when this golden opportunity presented itself?
You guessed it.  Asleep.  Hey, would you be awake at 6 am if you were on vacation?  lol

For some reason this entire episode reminds me of that Disney movie "That Darned Cat". I think I first saw that movie 40 or more years ago.  I never laughed so hard in all my life.
Click on any chart to ENLARGE
So back to silver.  I watched all day until I had seen enough, held my nose and jumped off the fence and into the barking dogs. As you can see on this 5 minute chart of the Silver Continuous Chart (/SI), silver had formed a pennant at the $36 price area.  Price began to break out to the upside and so I hit the sell button on those shares of ZSL.

This 30 minute chart of silver (/SI) was snapped 90 or so minutes later. It's only funny because it's so sad and a reflection of my trading experiences lately.  Meow!
Which way did silver finally break?  That's right.  Down.
Anyway, perhaps you can see what made me hyper. Price had risen squarely from $35 to $36. It stopped to make a pennant continuation pattern, and that projected the next stop as $37. There was no way I wanted to ride ZSL with silver likely to continue up to $37.
The trading day ended today with the iShares Silver Trust ETF (SLV) putting on quite a convincing show. All the bells and whistles were used for buy signals. ZERO crossover, trend line break, price channel breakout, blah blah.
Gold also met my skeptical requirements today. It closed above the 50 dma, the slower trending TSI (25,13) finally turned up, TSI (7,4) made a bullish ZERO crossover.....
So, I think the bull is back. Time to do some homework on the miners, again!

Oh, and here is how the Standard and Poors 500 (SP-500) ended up today.  I'm still holding one position - TZA - and think I will continue to hold it until I see this thing fall.

Please don't turn out to be a .... dog (pun intended).
My TSI Trading Record has been updated.


  1. John,

    Thanks for the post. Sold my shorts also once I saw silver break through that downtrend line. To be honest, I was actually debating going long. I probably should have but my emotions got the best of me after the past few painful days.

  2. It's hard to watch the S&P going up and up along with TZA going down but what goes up will come down.
    Question is how high is this going and will you weather it? Jobs report tomorrow could make or break it perhaps?
    I am rooting for you.

  3. John, could this be a fake move in metals before final drop? Im seeing negative divergence in TSI in gold on weekly and even on daily... we dipped under important support lines and got forced out, now seeing that metals struggle to go higher than descending resistance lines from April top makes me go hmm...


  4. We may be nearing some sort of profit taking here.
    I'm looking at the casino stocks and they're all pegged overbought.

  5. Hi John, these are volatile times. What is happening with the US dollar? Is it going up, or is it going down?!

  6. Dan - I can relate to what you wrote, completely. Thanks.

    Anon#1 - thanks for rooting for me. I do appreciate that. I will weather TZA a while longer because I do not think it is likely this kind of rise in the S&P will continue w/o a bout of profit taking. And that, should it happen, will be my exit. But certainly, it is no fun waiting in the mean time.

    Anon#2 - There was a positive divergence on daily gold a few days ago resulting from last Friday's price drop. That has since been corrected with price moving higher.

    The weekly chart of gold has what I call (and have studied rather extensively) an 'inverse positive divergence'. This is fairly unusual to see, but actually it is bullish.

    A positive divergence has price making a lower low and the TSI making a higher low.

    An inverse positive divergence has *price* making a higher low and the TSI making a lower low.

    It was tough for me to get my head around this one for a while, but with a lot of study it finally made sense to me.

    An inverse positive divergence simply says this: price trumps the TSI. Price is stronger to the upside than the TSI (momentum) is to the downside.

    MrMiyagi - I appreciate your optimism. I share your optimism. Let's hope we are right.

    Eamonn - now that's a damned good question. I really would like to consider any hint of reasoning to explain what is going on with both the stock market and the dollar.

    I have been so wrong in my trade positions lately that I think everyone would be well advised to not listen to me until I get it together.

    Having said that, I believe that gold/silver have either bottomed or virtually bottomed (think Feb. 2010 for the fake out example).

    I believe we did not see the C-wave parabolic top in gold yet. Heck, gold did not even correct down to touch the 100 dma, let alone the 144/150 dma or the 200 dma. And now that I really think about it, I cannot fathom that a C-wave would conclude with such a wimper, nor would it peak with a mediocre rise above the 200 dma of some 15%.

    The FED is going to keep on with its QE2lite program of reinvestment into buying Treasuries, working with Obama to give away oil (which supposedly lowers the price of oil and raises the profitability of our companies) and Lord only knows what other 'peanut under the shell' illusions they have waiting for us. Any way you look at it, the FED is continuing to do, in concert with the White House, everything it can to devalue our currency.

    Meanwhile, the Euro continues to raise their interest rates to, among other things, defend the value of their currency.

    All of this leads me to guess that the US Dollar, one way or another, is going down.

  7. Dear John, with the strong rally on S&P today, it seems that the head & shoulder formation that we desperately wanted to unfold has been broken. It appears also that the S&P has broken the multiyear resistance at around 1340. Now what?
    Do you still anticipate the fall? I believe it will come down at some point. But the question is how much more damage will be done before it actually happens.

  8. Anon - I appreciate your concern and I did just look at the S&P chart to see what it would tell me.

    While I certainly would not argue with you, or anyone else for that matter, I am not at all convinced that the head and shoulders pattern has been broken, nor that the multiyear resistance is at 1340 (I am seeing something around 1360+) or that it has been broken.

    In any event, I do concede that odds favor both of these metrics will likely be violated at some time in the near future.

    By my count, today was Day 14 of the S&P's newest daily cycle. That daily cycle usually runs around 40 days, though lately with the FED's printing manipulations, it has run as long as 60 days. Anyway, usually there is a half cycle low - a resting point where profit taking occurs before the midpoint of the cycle.

    Translation: I expect (and hope, obvioulsy) that as the typical midpoint is about Day 20, we are due for price to begin a profit taking relaxation - making a half cycle low. If tomorrow peaks higher on Day 15 then begins a 5 or so day relapse, that will be my cue to put the jailer's keys in the lock and escape.

  9. John,
    The good thing is that your TZA came in not at the bottom of the uptrend but in the middle-first third.
    We'll see what happens with the jobs report although it seems that it's always massaged to the sunny side, sort of the "happy ending" version.

    Good to see you here too.

  10. good evening John,
    You probably sold your zsl around the lows, but I've done the same thing more times than you.
    Either that or I just rode 'em down to oblivion.
    When you get time, could you please give us a couple of examples of the inverse positive divergence you mentioned. Do you think it has any value?
    That Head and shoulders pattern you spoke of.... I'm sure you realize it doesn't mean a thing until it actually completes and then still nothing until it breaks the neckline. (and then you don't know if it's a false breakout)...

  11. 18 k jobs - TIMBER !!!!!

  12. John,
    Good morning on Friday a.m. where we have just gotten a horrible jobs report.
    You're going to be happy with your decision to stay with your TZA.
    I loaded up on SDS August "22" calls yesterday based on your position and on John-Michael's posting of this linked piece:
    The combination sealed the deal for me. Thanks to you both.

  13. Mr Miyagi - so far, so good this Friday morning.

    Monty - could be I sold ZSL near the lows. My price was 17.48. Current is 16.73 and falling at this moment. The H&S pattern, yes I agree it has flawed probability. But what doesn't? I never saw a gold daily cycle of 14 days until just the other day. This stock market stuff is always a game of playing the odds, never playing certainties.

    Yeah, finding some examples of inverse positive divergences will be fun. I'll look into that today and probably do a post so we can share that information. Thanks for the idea Monty.

    Jim - price has nearly filled the gap created with yesterday's gap down open. 32.27 would do it. A 38.2% retracement would take us up to 35.35 and I could use the jailer's keys to escape with my shirt on. Common' loggers!!

  14. ckpc - I really hope that everytime I write something it will help someone. I am pleased that *this time* it helped you. Options are like playing with fire - I hope you do not hold the match too long. Let me know how it turns out, OK?

  15. John,
    Just based on the long term action of ZSL I was tempted to take a long position on it. The chart screamed "go long dammit"...but I couldn't bring myself to take that position..only to offset my AGQ position. Sometimes fundamentals do matter and charts lie like hell. lol