Clive P. Maund
gold, silver, & oil shares


SILVER AT THE PRECIPICE - Puts in SILVER WHEATON, Calls in ProShares Ultrashort Silver...

originally published September 15th, 2011

In the past day we have seen noises coming out of Europe to the effect that the big players are going to shore up Greece and prevent it continuing its slide into oblivion. The reality is that Greece has already defaulted, but the markets are nevertheless welcoming the effort to "paper over the cracks" anyway, so we are seeing stockmarkets rise, the dollar drop as the euro recovers and gold drop too. What this implies is that the recent big rally in gold was in large part due to "end of the world" fears over the precarious condition of Europe - so if these subside, if only for a while, we may see the dollar and gold dropping at the same time - and we end up with the correction in gold that we are expecting.

The silver chart has looked ugly for months, with an insipid post crashlet rally nudging the price gently higher, so that the pattern forming from the late April highs appears to be a big 3-wave A-B-C correction, with a brutal C-wave plunge possibly right around the corner. Rather strangely, most silver speculators seem to have total amnesia when it comes to an awareness of the severity of silver's periodic plunges and the massive damage that they can inflict in a short space of time, and if gold now corrects back, we may have one of these plunges dead ahead of us.

As we can see on the year-to-date chart below, silver is in the danger zone right now - testing support at its lower channel boundary and 50-day moving average. It must rally away from this immediately to avert the danger of a plunge, which is likely to be triggered by its dropping below $39.50. This is a good point to buy Calls in ProShares Ultrashort Silver, ZSL, or Puts in big silvers like Silver Wheaton Corp SLW, SLW.TSX either for speculative gain or to neutralize losses that might otherwise occur if silver plunges, and the odds of this happening soon are considered to be be better than even.


Appropriate ZSL Calls at this juncture are as follows...

We should go for fairly close strikes with ZSL, as it tends to spike up between $4 and $8 and then die. The October 14 Calls rec'd yesterday afternoon in an Email alert at 0.74 are now at 0.75, at the time of writing. The October 15 recīd yesterday afternoon at 0.45 are now at 0.53, but still attractive. For more time go for the November 14 at 1.15, same price as yesterday, although this is a last trade price. You may recall that we bought Calls in ZSL a day after its low over a week ago, and due to ZSL having since broken out of its downtrend, we are already up substantially with these positions. Take profits in the September 12 Calls that we bought at 0.38, when they were recommended in the COMPLETE TOOLBOX FOR CAPITALIZING ON A GOLD & SILVER PLUNGE article, and are now at 0.70, so they have almost doubled - it is approaching expiry and the proceeds can be rolled into a later expiry, such as the October 15 mentioned above.


Silver Wheaton is believed to be completing a large Head-and-Shoulders top, and is close to the top of the Right Shoulder of the pattern. If this interpretation is correct then we are at an excellent point to buy Puts in it.


Recommended Puts in Silver Wheaton are the Oct 34 at 0.91 and December 34 at 2.00 - remember that these are last trade prices and the prices may be higher now - but they are certainly still worth going for, considering the magnitude of the decline in prospect.

Charts for Silver Wheaton and ProShares Ultrashort Silver will be added to this article later - they take time to annotate, and the market may not wait for us.

Silver Wheaton SLW, SLW.TSX trading at $37.84 (C$37.42) and ProShares Ultrashort Silver ZSL now at $12.41 at approx 10.26 am EDT.

Posted at 1o. 30 am EDT on 15th September 11.