I sent out an email to BestOnlineTrades Letter Subscribers (the green form at the top of this site) yesterday on how I thought that the SLV was a short term long setup and buy for 1 to several days based on the recent 1 day washout.
I wrote in the BestOnlineTrades Letter yesterday:
Yesterday I did a post that the SLV was 'topping'. My main point was that it was likely a very short term top. But in the near term I think there is a minor long trade developing in the SLV slightly under the 44 level. 43.67 is the exact number that I think could be a great short term buy. So near the close today if the SLV is between 43.50 and 44 I would rate it as a short term buy, with a possible 1 to several day up move, and this up move could eventually exceed the 47 level by a small margin.
and then went on:
My main reasoning here is the speed with which RSI (relative strength index) has become oversold back down to the 70 level. During extreme momentum runs, a quick RSI crash to 70 range again is usually a good short term buy point again. However, it should be noted that these types of drops DO start to setup the possibility of a bearish divergence and eventual more important top.
Today the iShares Silver Trust (ETF) SLV blasted higher almost 7% in one day. The strategy of identifying extreme momentum stocks and then watching the daily RSI blast down to oversold 70 range in one day is usually an ideal long setup and today was not exception. This may be one of the most highly probable trades in existence today. It is essentially an automatic rally and heavy short covering the day after a previous big drop that went counter to extreme upside momentum.
I think the SLV can still exceed the 47 range in the days ahead and try to push higher to new marginal new highs.
However I want to make it clear that I do believe we are starting to get closer to a top in the SLV but are not quite there yet.
The recent MASSIVE volume in the SLV of the day before yesterday is a sign that we are reaching buying climax levels.
Having said that, I still think we can exceed the 47 high and push higher for a while. But the next risk is that a bearish divergence will be created between price and RSI.
The bottom line is that the easy money has been made in the SLV. And yes there is upside to 60 range perhaps, but between 50 and 60 is likely not for the bulls or the bears, but instead the ‘pigs’. These high volume climax buying volumes are the precursor to a top, but do not have to be THE top.
The timing for the SLV and GLD ETF going into a top mid June looks quite promising. I have been talking about how the market could maybe hit a turning point in mid June 2011 but we could see the precious metals align much better than the stocks in which case there could be a huge shorting opportunity developing in the metals on or near June 13, 2011.