Trade like Peyton

By: Erik Swarts | Thu, May 5, 2011
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Another day, another decline for silver - another margin hike by the CME.

This is what the back side of a parabolic commodity market feels like. It's reinforcing, violent and often temperamental. Just as you think the market is stabilizing, the ground falls out and the next level of support comes into view faster than my 7th month old devours a sliver of cantaloupe (he's advanced - we're very proud). It is why I reasoned just last Thursday when the market was sitting directly below the magic level of $50 an ounce that we could see SLV at $32 in the not too distant future.

Needless to say many were skeptical.

Silver Prediction

Before I pat myself on the back any further (there's typically an inverse performance relationship to hubris) , there's a logic behind the seemingly outrageous expectations I had for silver last week. Once the price structure failed as it did on the 26th, I knew the momentum engine was starting to cough itself out. Couple that with an ADX (strength of trend) above 60 and a closing directional spread and you could have reasonably inferred that a top was imminent. Once silver failed to take out the historic highs from 1980 - its fate was sealed.

The next order of business was near term targets. On Sunday night I came up with these.

SLV Hourly Chart

By reviewing the pullbacks for silver over the past two cycles in 2008 and 2006, you will find proportional moves to the one we are currently experiencing. Specifically, I focused on 2008.

Silver 2008 versus 2011

What makes this move special is the backdrop in which it is playing out against (exhaustive dollar lows) and the magnitude and velocity of gains it had going in.

The market's kinetic energy is merely translated from the pivot.

It should make for interesting trading going forward. The market only follows the script for so long before it calls an audible. Best make like Peyton Manning and avoid the sack.

Stay frosty traders.



Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

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