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« SKF: Increased Our Position | Main | Silver Stocks: Focus and Concentrate! »
Sunday
Mar232008

Silver: A Shot in the Dark!

At times like these it is important to remain calm and keep a clear head in order recognise an opportunity. Precious metals portfolios have just been through a reality check and a serious dose of adjustment has been administered. So what do we do now?

If you are fully invested for the long term then you stick to your plan and sit it out. However if you some cash on the sidelines now is the time to watch the market evolve and see just how your favourite target silver stocks react in their new environment. For instance, as regular readers know we have bought into Endeavour Silver Corporation twice and have also missed increasing our stake on a few occasions because we placed our bids little too low. Its disappointing when you don't acquire the stock you want at the price that you want to pay for it, but that's part and parcel of investment life. If we have missed an opportunity we try not to chase it, but we do carefully observe its behaviour in preparation for a second chance. This correction is just that; a second chance!

In terms of timing, the oscillations may well go on for some time in this sector of the market, so it is important that you decide what a particular stock is worth to you. In our case we decided some time ago that Endeavour was a steal at $3.25. As you know the year started brightly with silver going on a tear and Endeavour trading between $3.25 and $4.45, enough of a range to be considered for our trading account. Endeavour closed at $3.48, close enough to our target purchase price to give us hope of making another acquisition. So, we have submitted orders over the weekend to buy Endeavour at $3.25. The market could open with silver on the recovery trail taking the shares to higher ground or we could see some volatility with silver spiking lower. If the latter happens then there is a possibility that our order will be filled. There is also the possibility that prices could go lower immediately after we have made our purchase, which is something that we just have to live with.

Endeavour Silver Chart 24 March 2008

We have set this purchase price for Endeavour as it appears to have been this stocks support level for some time now. Examine your favourite silver stock and see if you can discern a support level for it, then maybe watch it for a while and see if it behaves accordingly.




Patience is required, something that we are not particularly good at, but we have placed our orders and will report back as the situation unfolds.

At the risk of of sounding vague we have not yet established an exit strategy but in broad terms an increase of about 33% in a short time would tempt us to sell. If we can manage this sort of trade three times over a year then our target of doubling our capital, annually, has been achieved.

If you would like to follow our adventures in the silver sector and receive our frequently published and soon to be legendary free newsletter then please click this link.



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Reader Comments (6)

I follow all three of your newsletters. What percent of your investments is in each of the Gold, Silver, and Uranium stocks? Are they equally divided into all three?

Thanks for your great service!

March 24, 2008 | Unregistered CommenterRon Goodman

At one time you were watching Fronteer (FRG). It has dropped considerably from your last discussion. Any thoughts about this for a future repurchase? Kevin Keataor

March 24, 2008 | Unregistered CommenterKevin Keator

Ron, We are due to do a portfolio update soon, so we know exactly once we have done it and we will report back then.

March 24, 2008 | Unregistered CommenterSilver Prices

Kevin, FRG is feeling the effect of Aurora's problems regarding getting permission to mine uranium etc, it has also been hit by the price of gold dropping, yes it is under consideration for a future purchase.

March 24, 2008 | Unregistered CommenterSilver Prices

Interesting to note that SSRI, PAAS, SWL all lost ground but EXK, the one we wanted to capture gained 3.45%, Rats!

March 24, 2008 | Unregistered CommenterSilver Prices

You have started putting in bids for silver shares. On the 20th March 08 you wrote a great essay `focus and concentrate`. By starting buying silver shares do you feel that the silver bullion price has now also bottomed?
I have studied silver movements very deeply and wish to share the below with you. I guess most (or all) you already know. Any comments would be appreciated.

Best regards
Albert


SILVER

- The trend of silver is no doubt up, currently in average around 30 % per year (expet last year was less but overall 30 %). I believe as you that this long term trend will go for many more years. This was the basis for me to look deeply into this market. Of course I have no idea about the % increase per year in the future but I strongly believe it will be up!

- In long term the up trend line follows the 200 daily moving average

- Within this long term up trend line there are often HUGE blow off peaks, that is so far up to 60 % (I guess in future this could be much more) higher than the 200 daily moving average, HOWEVER not for too long

- What I learned in the last years is the FACT, that silver always goes back to around (or close to) the 200 daily moving average (in August 07 it went way below the 200 daily moving average. I disregard this event as it was linked to other financial issues). Currently the 200 daily moving average is around USD 14.70. So the current pull back could be anywhere between USD 14 to USD 16. (of course no idea about the timing. It could bounce back to USD 20 or higher from currently USD 17 but eventually it will go down to the 200 daily moving average)

- Of course ups and downs never go in straight lines but in silver the downs are usually fierce and fast (even only few days!! ... like now) and the ups drag on over a longer period of time.

So what can we learn from the above. Nobody can time the market and nobody knows how far from the 200 daily moving average silver can blow off peaks. You need to be patient. So how can we optimise our income with the above knowledge:

1. As you I believe in the long term silver market so keep a core investment and simply forget about it.

2. Further I believe silver is great to trade as it is volatile and is in an overall up trend. The gap between buy and sell is around USD 0.25 / Oz and stop loss orders are usually executed exactly at the price you instruct. I have developed an overall pattern how to trade this. I would be very happy to bounce of more ideas with you in order to optimize my experience:

SILVER TRADING STRATEGY

1. Buy close to the 200 daily moving average

2. Set stop loss order 10 % below spot (the more volatile silver becomes the higher you may have to go / if you wish to take less riks you can go lower, however at the same time you get kicked out of the market faster so after finetuning I am sitting at 10 % at present)

3. Adjust stop loss on the weekly cumulative average

4. NEVER lower stop loss orders

The above worked for me a lot of the times over the last years, of course not always (like for example in August 07) but so far pretty good.

I believe the performance could be improved a lot by finetuning the above during the blow off periods. As you know the blow off period is where the big money is made.

My thoughts are (no experience yet)

5. Adjust to daily stop loss orders (but of course Point 3 still applies)

6. Perhaps adjust and use lower % stop below spot

7. Consider selling when % above 200 daily moving average is too high (what is too high, I don`t know, I guess just gut feeling)

8. Reflect with other silver bugs when the time is ripe

3. Trading between the blow off peaks and 200 daily moving average, is of course also possible, however I was unable to identify any patterns. The only interesting point was: In the May 2006 blow off peak we had a very similar situation as today, that is it corrected around 20 % but before hitting the 200 daily moving average it had another spike ... could we repeat this today ... of course I don`t know. .... and of course the longer and higher the silver price the higher the 200 daily moving average will move up!!

March 25, 2008 | Unregistered CommenterA.B.

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