#1, there is considerable risk with gold and silver and until otherwise determined, the trend is down, and I wouldn’t even put puts on metals, because they could easily reverse.

#2, I expect a withdrawal of Greece from the Eurozone unless things change. There will be some panic as this approaches and then a very big rally as Europe gets a real monkey off its back.

#3, miners (NUGT) will recover when the SPX recovers. Miners like Barrack are taking good measures to improve profitability and we will have a major investment opportunity once a bottom is in. It may be painful for a while but we’re holding NUGT, and the reason we bought the actual ETF rather than options was precisely because of this possibility.

#4, SLV may see some recovery with the opening of silver futures trading in China on Thursday. Don’t bank on this but it could be a real factor. On the other hand it may be a non-event.

#5, once the SPX puts a bottom in we will have some real buying opportunities because we have every reason to expect a sustained rally over the summer, starting approx Jun 4. I have been discussing this for about 6 months and the reason for this is the election year Democratic incumbent seasonal pattern, and McClellan’s eurodollar fractal (which has proven very robust for the last 2 years or so). We are inclined to purchase value blue chips if any present themselves which are highly correlated to the SPX, or triple-weighted ETFs, the latter instead of options because our predictions could always be wrong and things could go to hell in a handbasket, and while unlikely, we want to be able to have stops and high liquidity, which means options are out. It’s a pity but there is considerable event risk at the moment.

#6, this panic and withdrawal from the market is temporary and while the extent of it is surprising to the Company (we wouldn’t have bought NUGT, we would have waited), nevertheless cool heads will make the money and it’s not a big crash; it’s a correction which will resolve itself shortly (June 4). Thus we should not short the market, it’s too risky. We should wait for confirmation of a bottom and price recovery, and this should be coupled with news event confirmation. Also, when June 4 approaches and we start looking to go long, we should scale in.

There is a lot of talk that gold and silver markets are manipulated. I have always been skeptical, I dount they’re any more manipulated than any other stock, and this is partly because, contrary to popular perception, and as I point out rather constantly in this blog, gold and silver are not money, they are merely perceived as money. In truth they are just shiny metals and that’s it, and people who attribute other qualities are living back in the 1960s when there was a Gold Standard. However yesterday there was a very suspicious multi-million dollar trade in gold. It’s suspicious because it was made below value, immediately pushing prices down. It’s also suspicious because anybody trading millions of dollars does it in pieces, not wholesale. Even me, who only deals in thousands, even I stagger trades to cost average the price.

I see gold miners at a historical low, presenting a great long-term investment. I’m going long NUGT today. I also see gold prices steadily rising over the summer despite seasonal factors which would suggest otherwise. This is primarily because gold is entering a new 13-1/2 month cycle. Further, the seasonal patterns are different in election years and the democratic election year pattern generally sees summer rallies. Gold as a speculative instrument should rise with the SPX, and gold miners (NUGT) along with it. I think we can recover our losses from this bloody SLV trade by Jul or so with NUGT. We will probably go long PHYS or GGN toward the end of May as well.

Palladium was mention in Barrons a couple of weeks ago and today we have a major breakout. There is supposedly a shortage of palladium. I say supposedly because the problem with palladium is that the Russians have been hoarding it for years and their actual stores of palladium are a state secret. This is not to say that palladium is shiny and desirable. I want it and have for years. I mean the physical. But I don’t see buying PALL without a follow through from platinum and silver, primarily because they are mined in the same deposits and are used for similar industrial purposes.

With SLV we have some very negative press and large outflows from the ETF at the moment which is suggestive of a bottom, but we may well be in an orderly unwinding silver (commodities generally crash up and unwind in an orderly fashion). It is, along with gold, grossly overvalued, and this blog has said as much for some time (years). SLV is in the process of forming an inverted head-and-shoulders but this chart pattern is not as reliable as people think. Also SLV is very closely correlated with the SPX and we can reasonably anticipate a good drop in the SPX. As I said, the Company has written off its SLV options. The good thing here I suppose is that being option traders, we risk small amounts of capital.

At the moment the Company is looking for an opportunity to unwind its SLV options and is preparing for what we anticipate will be a good rally starting late May. We have discussed this in previous posts, indeed we have been waiting for this rally for about 6 months.

The presidential year cycle and McClellans eurodollar fractal lead me to see an SPX rally this summer leading to Nov. Bespoke’s weekly report today discusses the presidential election year pattern. With silver highly correlated to the SPX, there should also be a medium-term rally in silver.

Note on the weekly, SLV is in a squeeze which should see a clear breakout within a few weeks, and major support has not been violated, nor has the upward trendline:

The monthly silver chart is still uber-bullish and a summer SPX rally should support the uber-bullishness:

First, they’re not being lowered very much, and as of Monday it will take about 9.5% of the value to hold the paper, whereas when silver went parabolic in 2011 on April 29, it took only 4% to hold the paper. So I am not sure there will be much of an effect, though it may provide some price stabilization in silver.

After the announcement you would have thought silver would rally, but it didn’t, which bodes ill. However the margin lowering doesn’t take effect until Monday and thus the extra bit of liquidity will not be present until Monday. I suppose Monday will be a key day which we should pay some close attention to… because either this extra liquidity will be reinvested in silver or it won’t.

This does lower the probability of a silver crash like we had last year, however.

Some have called this blatant silver market manipulation and it’s fairly easy to find conspiracy theories about silver market manipulation. Zero Hedge is always a good source for conspiracy. I will not completely discount the idea of silver market manipulation because it has happened in the past and so is likely to happen again. However the silver market itself is fairly liquid compared to the 1970s (when we can say with some precision that the silver market was being manipulated) and so this in itself makes me somewhat doubtful. I would say the lowering of the silver margin coincides with the Fed turning off its money spigot, and that’s about it.

First, McClellan sees a decline in the dollar and a rise in gold coming, which would be very nice. His reasoning is based mostly on COT data. Go McClellan! I hope to frack you’re right. However he also predicts a decline in the SPX, which I find problematic, as I will discuss.

Now, with these charts, you can right-click “view image” to see the big chart.

The SPX has entered a new cycle (note sine waves) and is pretty clearly on a downward trajectory at the moment.

We expect this to change around May or June primarily because of the presidential election yearly pattern. This bull is difficult to time precisely but is the reason we hold May SLV calls and is also why we think our position may well turn around. Note the fairly strong inverse relation between SPY and UUP:

And note the strong correlation between SPY and SLV:

and the strong inverse relation between UUP and SLV:

McClellan sees a fall in the dollar and the SPX and a rise in gold (which has a very strong correlation with silver of course) and I find this somewhat contradictory, one of these predictions has to be wrong. Of course the degree of correlations shown above is not perfect and correlation shifts (as you can easily see on the correlation on the bottom of the charts) so correlation is not a perfect way to read markets, and one must always be aware that correlations are dynamic and shifting.

Bottom line, the high probability scenario is a decline in the SPX for the next month. This should result in a rise in the dollar and a corresponding drop in silver. Hope I’m wrong.

The chatter on Stocktwits has gone bearish and apparently CNBC is saying short silver. As a contrarian, this tells me the bottom is in.

Today McClellan went bullish on precious metals.

As I have noted, seasonally we should expect a rise in silver through ~May 10.

Charts (right click “view image” to see the large chart):

First, silver priced in dollars and euros is in a squeeze which should see a clear breakout soon one way or another:

The big picture in silver, in a clear uptrend until proven otherwise (which would take a hell of a lot), and it has bounced off the mid-channel support and should continue up: