Silver Plunges 12%, What's Going On?

 

Inquiring minds are watching silver futures get smacked this Sunday evening. Here are a couple of charts to consider.
Silver 15 Minute Chart

Silver Monthly Chart

The monthly chart looks ominous. It seldom pays to chase spikes like that, regardless of fundamentals or perceived fundamentals.
Where to From Here?
I was not even going to comment on silver tonight because of my sale last Wednesday as noted in Taking Silver Profits - Swapping Silver for Gold.
What changed my mind was a post this evening by Zero Hedge: More On The Silver Dive: "Massive Sell Orders" Coupled With Bolivian Nationalization Halt Combine For Perfect Weak Hand Shakeout Storm

Looks like the old sell into low volume trick to flush the stops and kill the weak hands has worked again. Throw in last week's two CME margin hikes and Friday night's margin bonanza by MF Global, and one had a perfect storm set up for another wipe out in silver to start the week.
In the meantime, silver promptly managed to retrace over 50% of the move shortly after the dump. At this point whatever holders remain following last week's margin action and this evening's fine example of shock and awe will likely need far more energy and capital to be shaken out by the same entities whose primary goal is to prevent the surge in silver and ongoing capital-sapping collateral calls. Since none of the actual fundamentals before the long-term trajectory in silver (and gold) have changed, this appears like a rather attractive entry point.
Lastly, one should recall that silver had a mini 10% correction last week and not only promptly recovered but nearly passed the $50 level shortly thereafter. This time will not be any different.

I Don't Know, Zero Hedge Doesn't Either
Perhaps Zero Hedge is correct. Silver may be headed higher, much higher. However, he sure as hell does not know.
Ironically, in spite of saying "this time will not be any different", he is banking precisely on "this time is different".
The reason is parabolic spikes never end well. The problem is figuring out when they may end. As for me, I see nothing attractive about buying silver at $43 in a parabolic spike, when it was $17 less than a year ago.
Technically, there is minor support at $30 but there is no major support until the low $20's.
That said, I have been wrong many times before and I may be wrong again. However, I do not see a good buy-the-dip setup here, in parabolic spike correction that may have just started, when anti-dollar sentiment is extreme, in a seasonally unfavorably period for precious metals.
Regardless of what happens, there is a lot of merit for being on the silver-sidelines until August when seasonal factors are more favorable, and rabid bullishness may have worn off.
Of course, this time could be different.
What's Going On?
If silver corrects further, expect GATA and all of the silver conspiracy advocates to come out of the woodwork screaming "manipulation".
Instead, I propose the "real deal". If silver corrects hard, it is because everyone and their brother is already "all in". When no buyers are left to support silly prices, crashes happen.
Should silver propel higher, then it will be because the pool of greater fools has not yet exhausted itself.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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