Kid Dynamite's Friggin' Picasso (blogged response)

Today Kid Dynamite tells us that the chart of SLV (and therefore silver the metal) "...Looks Like A Friggin' Picasso." Meanwhile, here's how the latest moves in the junior silver stocks are best depicted:

(Click to enlarge, as it's just a good excuse to get my fave canvas ever on the blog, really)

But never fear, the times they are a changin'. DYODD and while we're here a big "HI" to the Rick Rule sycophants out there. Keep them there mails coming, y'all*.

*yeah i know, i'll never get a job as a financial analyst in California. Heartbreaking, so it is.

Small Silvers, year to date update

So after running a pretty sad looking five day chart on the small silvers earlier this week, your humble scribe gets a "Hey, how they doing YTD, Otto? How about an update?" mail from reader 'PT' yesterday. Yep can do, we haven't updated this one in a while, so here goes:

click to enlarge

Top spot is held by US Silver (USA.v). Although only 15% up YTD and way off the kind of returns this little basket of small silver producers were returning last year, that's a pretty fair performance in the face of some serious sector headwinds.

Number two post is significant. The silver bullion ETF (SLV) has outperformed all the producers on the list bar USA.v, which doesn't bode well at all, really. Third and fourth (well, a virtual tie) come MAG Silver (MAG.to) (MVG) and Bear Creek Mining (BCM.v).

All the rest are showing negative so far this year. Gulp. Worst of the lot is Great Panther (GPR.to), down over 20%. This goes to show you exactly how much stock scamster Jonathan Lebed knows.

The 2010 Small Silver Sweepstakes update

Checking in on the state of play in our sweepstakes challenge, as we take nine small silver players and compare their 2010 Year To Date performance to how silver-the-metal is doing via the silver ETF (SLV).

(click to enlarge)

This update shows the field has been shaken up considerably in recent weeks. Our top player is now Bear Creek Mining (BCM.v), a company that has been up'n'around the top echelons ever since we started the series in the 2009 season. But second place deserves a decent mention, as US Silver (USA.v) has made a strong move forward on the back of a decent earnings report recently (and we suspect, some of the larger newsletters putting its name forward as a possible investement). I took a good hard look at the USA.v earnings release and in general I liked what I saw. The high cash cost is still an issue but this can play in favour of those investors who think silver is going much higher from here and can look to USA.v for great leverage. That one is up to you to decide so DYODD, dude.

Meanwhile, MAG Silver (MAG.to), though treading water somewhat recently, has held on to the bronze medal spot. Next comes our benchmark SLV, which means all the others left to mention have not performed as well as their main product in 2010 (so far at least).

A final thought: The range shown in this update is the smallest ever, with just 36% between the best and the worst performers. Also, only two of the 10 tickers are in negative territory now, which is probably good.

Comparing Silvers

We did a section similar to this post (though more focussed and less snarky) in The IKN Weekly, issue 22 last weekend.

click to enlarge

Check out this chart which shows how Fortuna Silver (FVI.v), Great Panther (GPR.to) and ECU Silver (ECU.to) have performed against silver the metal, as tracked by the Ag bullion ETF, SLV. What we can see is:

• Silver has risen by 18% in the period on its positive run. All good.

• Fortuna Silver has risen by 54% as the quality of this company begins to shine through.

• Great Panther lagged for a while, then shot forward when silver-the-metal reached a critical point. Then at $17/oz and above GPR.to caught up and even overtook FVI for a while. This is because GPR.to has a marginal, high cash cost operation that only makes a decent profit when silver prices are high. When silver dropped back to $16/oz, traders found out the flipside to that strong leverage. The Lord giveth, and the Lord taketh away. Meanwhile, due to its low cash cost Fortuna makes money at all silver prices.

• ECU Silver is a total waste of time and is best left to those influenced by BS pump tactics and shillers.

Moral of the story: First identify quality, then buy it. Then hold it. When it comes tp the world of small silver producers, there's none better than FVI.v. If you want to roll da bones on a high cash coster like GPR.to, well good luck to you. You won't find me screaming at you not to do it, but you won't find me as company, either. I like investing my money, not gambling with it. As for ECU.to, if you're long it's way past the time you admitted to yourself you were wrong. Or if you like, hold through and stay in investment kindergarten. Your money, your life, your call.

So what can we expect from Fortuna Silver (FVI.v) in the next few days?

Well, considering this chart (and remembering the April 21st malarkey recorded here)...

....and also that FVI.v has been returning to and then bouncing off the silver spot price all year (so far)....

.....there's every reason to expect FVI.v will close that gap with SLV in the next few days. As FVI.v is up and SLV down slightly today, that has closed the gap by 4%. So another 14% to go which, if SLV decides to stay where it is, would put FVI.v at $1.08.

Yep, I think that's a reasonable short term target right now. DYODD, dude.

BTW, would the dumbass who steals my posts and pastes them on stockhouse bullboards (without even having the common decency to provide a link) please stop it? It's not big and it's not clever. I had a reader mailing me today asking whether it was me. It isn't, it's a dumbass. I don't do bullboards any more (unless pointed in the direction).

Silver is a base metal

That's what this chart is saying.

I find this chart enlightening on several levels and an excellent roadmap for trading the near future. Using GLD as a proxy for gold and SLV as a proxy for silver, we can clearly see that silver performed as a classic precious metal asset class for a long time. Then with the onset of crisis that notion was blown away, silver immediately stopped tracking gold and dropped with the industrial indices (I'm using the Dow as proxy, as it's not called the Dow Jones Industrial Average for nothing).

The crossover drop happened just before the big swoon in the broad markets at the end of September 2008. Was silver the canary in the coalmine? I don't know about that one, but 20/20 hindsight makes it an intruiging thought.

It also explains, without recourse to silverbug paranoia and all that tosh about the PTB manipulating every given moment of our financial life, just why silver dropped as hard as it did when it did. Put simply, the market has rejected the notion that silver is an asset class...for the time being, at least. I more than suspect that silver's behaviour has a lot to do with this previously published chart that demonstrates the big rise in modern silver production.

This in turn is due to the fact that a large portion of modern-day world silver production is as a by-product of other metals, notably zinc and lead (and no doubts that they're base metals).

So what does this tell us? In my view it tells us that we can throw out the gold:silver ratio for the time being, as silver and the miners that produce silver will perform as a direct function of the broad economy. Or in other words, silver is operating as a classic commodity. Stick the Ag price up on the kitco basemetals page and strike it from the main website page as of this moment.

Also, taken with the chart above that shows SLV compared to a cross-section basket of silver miners (PAAS, SSRI, FVI.v, FN.to and GPR.to), it's clear that the silver miners offer significant leverage to the metal going forward (having been punished more severely from late September onwards).

Bottom line: Rules to trade silver as of today:

1) Watch the dow and forget about the price of gold. Silver is not tracking gold, it is tracking the broad markets. Silverbugs won't like the idea of that, but since when have they been right about the market anyway?

2) If you feel there is significant upside in silver the metal, trade the silver stocks. They will give you more bang per buck, at least for the time being.

The final question to be asked is; "What would make silver 'cross back', leave the industrials behind and allow it to start tracking gold again?" That's something that is worth thinking about for the medium term, but I really feel we have enough on our plates trying to survive on a week-to-week basis for the time being. Any suggestions for an answer to this part of the riddle gratefully received.

DYODD, dude

Related Post
A couple of interesting* charts on silver

Chart of the day is............

....the Gold:Silver ratio.

No squiggly lines or stupid drawings added by yours truly this time, just the 50 and 200dmas to add some colour.

This ratio has now been over 70:1 for six weeks, a very high multiple and defying the silverbugs bigtime (a group that makes the goldbugs seem well-adjusted). Of course historically silver is extremely oversold compared to gold but we are also living in historic times (financially speaking, at least), so I'd venture to say the two are related. Wouldn't you? (Check that chart again and note the dates). And then by looking around and noting the state of play in things like copper, tin, zinc etc it seems pretty clear that despite its $730/oz price tag that is 30% off the highs of early this year gold has benefitted from a lot of safe haven buying to keep it from dropping below $600/oz or so (and a GSR that fluctuates between 60 and 64).

I've stayed away from buying SLV for a while. Personally speaking I do get bored sitting on the sidelines and watching the wild swings and so I've tried a couple of small-sized quick-trade stocks recently (well...JAG was small, but then yesterday it turned into medium) but this isn't the time to trade with much confidence even when silver offers an 80:1 screaming ratio.

Final thought: the next time a goldbug tells you (or points to an article that says) the gold bull is still intact, just reply that gold is 30%+ down from its highs. What do they want, that it hits 50% down before calling a gold bear market? 60%? End of story. If they insist, you have full permission from the sensible people to laugh in their faces.

The copper and silver doghouse

And I thought about selling SLV yesterday....put that one down as "error".

Thus is the way with the market; one day demand worries shoot copper up 11% in the time it takes to walk across the street. The very next day Reuters reports "Copper lower on economic fears". Well, I may have screwed this one up this time around, but it does show the folly of trying to chase newsflow and the value of making firm decisions and sticking by them.

As for SLV....holding through. Time is on my side, and the GSR chart at 78/1 still says 'way way way overbot' in my language. This is the luxury that being (mostly) in cash allows you.

A repost of that Gold:Silver ratio chart

The above is the scrawly chart I put together after the bell on Friday and posted here Saturday morning. Here below is spot silver right now. Click either to enlarge.

It's a bit early perhaps, but I get the feeling that this SLV trade is going to work nicely (and for the reasons stated, too). Please prepare the guillotine for the guy with the sticky-out-head.

The gold:silver ratio: An update

Here's the latest chart in the ongoing series.

Click To Enlarge

I bought SLV late yesterday (link here), and it was very much seat-of-the-pants. So last night I looked in a bit more detail at the current silver state of play. As that chart above explains, this really is an excellent investment right now. Silver will at some point return (don't ask me exactly when, though) to at least 60:1 against gold, and that means that even if gold does the unthinkable and sinks to U$700/oz, silver will still gain from here. However, as gold got the same type of liquidation hammering as silver yesterday, it's much more likely that both move up. Add that to the overbought signal coming from the RSI (which has worked three times more than it hasn't, so odds looked stacked in our favour) and the timing looks right for silver, too. DYODD, dude.

Silver under $10.........

Paulson models the latest in fall fashion

..........but there's more chance of the hole in your tush healing up than there is of buying some actual physical silver at under $10/oz today. There's enormous strain on large players to raise cash right now, and to paraphrase John Lennon, whatever gets you through the weekend, it's alright, it's alright.

SLV could be the buy of the week right here....like a cork being forced underwater. I'm getting myself a few and taking the risk. DYODD dude.


UPDATE just after the bell: For the record, took profits on PBR and holding SLV through the weekend. A reader/e-mail swapper whose opinion I've come to respect wrote the following on the subject of silver/SLV and I fully agree. Today could turn out to be 'revenge of the little guy'... It'd be nice to win one against the big boys for once, no?

".....I guess there is some poetic justice here if, as some say, the massive sell-offs we are witnessing are being caused by forced selling by hedgies struggling to meet margin calls."

gold and silver up, the dollar down

Right now now whole trading portfolio is cash, some SLV and some GLD (which I bought one dollar too early yesterday, but zero sweats). Regular readers know that the move to cash was made plenty before this final slide happened (to be precise, the major liquidation happened when copper broke $3.10 to the downside). I'm also aware of the risks (according to the goldbug tinfoil hats anyway) of holding GLD instead of real bullion. The ETFs are for trading, and I won't be in them long. The LT port holds the real stuff, FYI.

The above paragraph is not crowing. I've stressed "preservation of capital" on this blog above all other things almost since its conception. Risk is for another day, and so are large positions in equities. Right now the portfolio is balanced so that if GLD and SLV move up it will be because of a dollar drop (i.e. today) and vice versa. It's a hedged position, in other words.

This is not a time for bravery. I'm Mr. Chickensh** right now and I'm happy about it. The bold and valiant Ottoinvestor will show his face again, but not right now.

Be careful out there. The whole point of capital preservation is to have a large attack weapon when the market finally turns. DYODD, dude.

UPDATE: Benny and Hank's T-bill backstop plan seems to be working for the moment. The yield on the 3 month paper is up and as a result gold is $15 off the day's high. I'm not changing the portfolio position, as the last thing to do is to start chasing a market. Repeat: this is NOT about alpha gains.

I'm buying SLV tomorrow

Here's why (click to enlarge either chart):

It's not just Laura Palmer that should be afraid of twin peaks.

I actually did quite well on this last time and made 26% or so by getting very lucky and selling at the recent top (as documented on blog, too). Incakola isn't a tipping service, but SLV does seem to be a good opportunity and nobody can accuse me of trying to prime the market by reco'ing a metals ETF, either.

So let's see if they give me under $12 on SLV tomorrow. If so I'm a buyer. DYODD, dude.

Taking profits

Took profits on the SLV today. This monstrous mess is difficult to understand, but at least in the short-term the cue I'm getting from the LatAm markets (all green) is the Dow/S&P sag of today is temporary. I expect plenty more volatility, and a certain amount of woe is being washed out of the US market as I write.

Therefore, tomorrow is less nervous, the US markets recover (along with the suddenly oversold greenback), oil backs off from this quite incredible move today, metals go through a necessary consolidation phase. All that's a mouthful of words to explain one thing; "Sold SLV", and if you had a 30% profit* to book in a market like this, you'd do the same.

Wouldn't you?

Long term core portfolio untouched as ever. Plenty of cash now and not buying anything today, not even the tempting CZZ. Call me chicken if you like, I don't care. I have three words stuck on a post-it next to the screen, and I'll be damned if I'm going against them now.

"PRESERVATION OF CAPITAL"

*correction, near 30%. Just checked

Buy silver

No other words necessary, because if you don't get this chart, you shouldn't be trading.

Gold:Silver ratio

Way back in May I wrote on the gold:silver ratio in this linked post. As part of the post I wrote:

"...the way I like my TA charts. I don't want to peer at my friend's gold/silver ratio for a few minutes and kinda weigh up the probabilities of him making a good call; I need to look at 'em for about a nanosecond with worrying too much about this indicator compared to the relative merits of that signal; I want 'em sitting up and begging.."

I think that this latest chart qualifies in the "sit up and beg" stakes, don't you?

(click to enlarge)

My only mistake today was to go long GLD. I should have gone for SLV. That will be remedied tomorrow, fear not.