Last Week’s Winners, Long & Short Ideas For This Week

Winners from last week:

FAS – Entry 6/20 $23.09 exit 6/14 $24.46 = +5.7%

QLD – Entry 6/21 $ 79.75 exit 6/22 $82.81 = +3.7%

TZA – Entry 6/22 $38.04 exit 6/23 $40.86 = +7%

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I like ZSL for a short this week if SLV can get back to $33.20 – $33.50.

I like the short side value SLV has a $33.50. From this area, it would be 9% away from the downside target on SLV of $33.60.

You can use ZSL to short SLV to maximize profits. 9% x 2 = 18%. With SLV at $33.50, expect ZSL to fall to at least $19.50 which would make the upside target about $23. There is a nice pivot at $23 and a big gap to fill just above that area but you can bet I will have unloaded before then. Adjusting for entry and exit, you should be able to make at least 15% of off this. Stop is a confirmation above $34 on SLV.

I put out my entry of LOGI at $10.37 on Twitter today and will continue to use it to disclose entry and exit points intraday. Though this is a weak stock that is in a downtrend, it just tagged the resistance level that it broke out of in March 2009 after the financial crisis. Obviously, this is a long term support level and should be good for at least a small bounce.

Again, this stock is in a downtrend and carries a little bit more risk than normal, but going into today it was very overextended from its 20 MA and it also pierced that 2009 low this morning before rallying about $.25 higher near the flatline for a slightly negative close. It has a gap to fill at $11.10 which is the first target, and could potentially rally to the 20 MA around $11.70 but I won’t be holding it that far unless it gaps much higher tomorrow and stages a robust reversal. If that isn’t the case, which is what I am expecting, then I’ll probably be a seller at $11.05 for a gain of $6.2%.

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Revett Minerals (RVMID) Receives AMEX Approval!

http://finance.yahoo.com/news/Revett-Minerals-Approved-for-iw-4129780908.html?x=0&.v=1

SPOKANE VALLEY, WASHINGTON–(Marketwire – 05/04/11) – Revett Minerals Inc. (TSX:RVMNews) (OTC.BB:RVMIDNews) (“Revett” or the “Company”) has been authorized to list its common shares on the NYSE Amex. The Company expects the shares to begin trading on the NYSE Amex on Monday May 9th, 2011, under the trading symbol “RVM”. The Company will retain its current listing on the Toronto Stock Exchange under the trading symbol RVM:TSX.

We are pleased to welcome Revett Minerals to the NYSE Euronext family of listed companies,” said Scott Cutler, EVP and Co-Head of U.S. Listings and Cash Execution, NYSE Euronext. “Revett Minerals and its shareholders will benefit from the superior market quality, services and technology provided by NYSE Amex. We look forward to a great partnership.”

John Shanahan, President and Chief Executive Officer stated “This is the culmination and fitting recognition of many years of hard work to get Revett to where it is today. As a US based producer of silver and copper, and with the potential of becoming one of the largest silver producers in North America, it is appropriate that we are listed on the NYSE Amex with full exposure to the US capital markets”.

I’m a day late posting and I’m sure most of you have already heard but I wanted to re-post this as I have talked about Revett several times on this blog. I did take profits on the 25th but at $4.65 I am tempted to average back into a position. Certainly RVMID could go back to $4 on momentum if silver takes longer to recover but even at $30 silver, Revett is hardly fair-valued at $4/share. I said a few months ago when Revett was trading at the same price that it is now that they would be pushing $5-$6/share and that was when silver had just touched $28/oz. With Rock Creek on schedule, silver staying above $30 and the AMEX uplisting approved, Revett will be much higher than $6/share when silver recovers from this correction.

Silver Fails Resistance Test On Low Volume

Many (myself included) had expected a break through the 30 year high to happen either today or yesterday, though both tests of resistance levels failed however yesterday we did have a 30 year closing high. Despite the break through the recent flat trading range, silver has yet to fully confirm the breakout by closing above the previous high. Volume is a concern as it has not been substantially high which is an indicator that the price is not yet ready to move higher. There is however, case from the bullish side.

It seems that the RSI as well as slow and full stochastics are presenting a bearish case as price activity has immediately forced the oscillators close to the overbought level of 80. However, over the last 2-3 weeks, those oscillators have diverged somewhat from price activity – indicating rising momentum when in truth, the price had remained relatively flat throughout. The 5 day period oscillator should level out beginning tomorrow as it will line up with the most recent changes in price. In any case, if the market deems silver overbought from a technical perspective, it still has plenty of room to move to the downside without breaking that 20 Day MA. Also, with the recent volatility, the oscillators will quickly fall to oversold territory if the price closes lower or remains flat for the next couple of days.

The other concern I have is the decreasing volume. The breakout has to be confirmed with volume and it simply has not been there. As of right now, I see one of two scenarios playing out:

The first is silver makes a new 30 year high and closes above it tomorrow, and on monday gaps higher and makes yet another 30 year high. Then, next tuesday it would gap higher on the open and close lower than the lows it made on monday – making for another key reversal.

The second scenario is it closes lower or flat both tomorrow and monday before picking up momentum in the middle of next week and then making another run at the 30 year high. If it fails another test of the 30 year high, then I believe momentum will have officially declined, and the support trend will be in question. I won’t be able to tell which scenario is more likely until tomorrow as the indicators on the chart are pointing in different directions.

Silver Oscillation Unfolds, Buying Pressure Is Set To Take Off

If you bought when I wrote “open silver longs,” then you are about to be rewarded! Since the article, silver has traded flat into a symmetrical triangle which I have discussed over the last few days. Price activity closed lower today as I forecasted yesterday which sets up my initial prediction regarding the triangle to come true.

Spot Silver

iShares Silver Trust (SLV)

The crossover in the slow stochastics took place as the price closed lower – which is something I said should happen today. The volume has been steadily weaker as the price consolidates – that translates to money being made that is now ready to be reallocated back into the sector. So the final part of my forecast is waiting to happen – a high volume move to the upside that snaps the upper trendline of the triangle and propels the price away from the 20 Day MA. This will happen by the end of the day wednesday but I believe that it is more likely to happen tomorrow. Hold onto those longs now because the ride is just beginning.

Silver Short Term Consolidation Ending, Symmetrical Wedge

Silver closed down $.11 for the day at $29.20/oz however recent candlestick formations are indicating that price activity is almost done consolidating off of the top which was set last week at $30.67/oz.

The first thing that stands out is the symmetrical triangle (or wedge) pattern that has formed during this brief consolidation period. The pattern consists of at least two lower highs, followed by at least two higher lows to form a triangle that points sideways. This pattern is a bullish indicator and is a sign of an upcoming breakout.

The key technical instrument in the silver market is the 20 Day MA. Using the 20 Day MA in combination with the triangle, we can see where price activity is likely to meet up before breaking out again. It appears that we may have yet another down day, followed by a relatively flat day (or vice versa) to end the week. That should translate into a bounce off of the 20 Day MA to start off next week . At the same time, the upper channel on the triangle will be pierced and price activity should close above that trendline to complete the formation and confirm the breakout.

Same story on the ETF SLV – 20 MA provides temporary support, symmetrical triangle has formed in succession with spot silver. However, there are other things that stand out on this chart that you cannot see with the spot chart. For example, the volume that has been present for the last two trading sessions (both down days) has weakened. If the trend is a consolidating trend where price activity moves sideways, such is the case with silver, then weakening selling volume tells you that the price is nearly done consolidating. Also in support of bullishness for silver is the five consecutive hammer candles that have appeared over the last five sessions. Single day candle formations alone are not enough to base a trade on, but in this case, where five appear in a row and with the other variables that are listed above, it adds a considerable amount of weight to the case from the long side.

As soon as the price closes above that upper price channel of the wedge, I expect silver to make a run at $32/oz and perhaps reach it by the end of January. Regarding gold – I mentioned that I expect it to take longer to recover than silver and I am sticking to that however I want to remind everyone that the Chinese New Year begins on February 3rd, 2011. I believe that I predicted that gold will correct until the middle or end of January before making a run at $1500… perhaps that prediction will come true and the consumption from the Chinese New Year will be the catalyst for another round of buying pressure in the gold market. In any case, it’s an interesting thought so we’ll have to keep a close eye on things. Right now the most important thing to watch regarding gold is the 50 Day MA which the price continues to hover above. If that moving average breaks down, then my forecast may come true, if not, then it will have to close above $1430.60/oz to confirm the next breakout.

Recap, Entry Point, Price Target, Laggards & Deals

Silver and Gold both retraced as expected which will present us- the smart money, a more secure opportunity to add shares as it is against common trading wisdom to chase a chart higher. The metals, the miners, and the ETF’s all traded lower following the reversal tuesday and while I still have reason to believe that silver will be squeezed upward within the next month, shares should consolidate again if only for a week or so.

The two things I want to point out on this chart are how I’ve been able accurately root out the two previous dips in silver by using the chart, and to predict when it will be safe to buy. I’ve been correct about the last two reversals and the chart provides more than enough data to support that claims I’ve made. Both of the last reversals contained substantial volume, an RSI peak, and a bearish divergence between price activity and either the RSI, or the slow stochastics.

As with the last correction, yesterday I mentioned that the time to buy would be when the %K reaches 25 on the slow stoch. The chart above reinforces my position on that for several reasons. The last three consolidations have not been very deep and all of them bounced off of the 20 Day SMA without dipping much lower beyond that point. We are currently close to testing that average, and not coincidentally, that MA is also right near the short term support level that has been used as both support and resistance in the last month or so. My guess is that we will trade relatively flat in the near term so any break of that moving average should be a strong accumulation signal for those looking to add shares.

Another reason that I believe that the correction will only last a short time is because some of the selling can be attributed to end of the year profit taking, as well as recent COT reports and the CFTC announcing position limits in January. Over the last few weeks the COT (commitment of traders) has shown that the 4 largest commercial holders of short positions have been periodically reducing those shorts. Part of that explains the parabolic run that silver is having and the fact that the CFTC will force those shorts to be covered in the near future means that a massive short squeeze is imminent. I believe that this consolidation will be brief and may serve as the proverbial “cup and handle” for the breakout. I think that spot silver can easily reach $33 by the end of January. There has been high volume on the SLV Jan 11 $35 strike for some time, whoever is betting on that can most likely make money if SLV reaches $32, and judging by the volume (it was over 20,000 calls last I checked) it’s probably a hedge fund that is making that bet.

With all of the excitement and flooding into silver that has transpired, it has been hard to find any deals that remain but there are still some securities that have lagged, and or haven’t quite experienced a pop just yet. Two names that come to mind and are most definitely still undervalued are Sandstorm Resources (SNDXF) and Revett Minerals (RVMID), (formerly RVMIF). Sandstorm Resources is a gold royalty company ($0.72 Pink OTCBB) who have been around for a short time but already have made 5 acquisitions including one recently from Brigus Gold (BRD). Management experience is crucial, when you see names like Goldcorp, Barrick, Silver Wheaton, Newmont etc. on the resume, expectations should be high. Their CEO, Nolan Watson was formerly the CFO of Silver Wheaton Corp, which has in my opinion the best business strategy out of any mining company in the industry. They have and impressive collection of resources and streams, and have lagged the sector which is great for anyone who wants to get in. If you would like a more detailed analysis, visit Hyperinflation’s article on them @ Seeking Alpha.

Moving on to Revett Minerals, the reason for the symbol change as mentioned before is because shortly they will be listed on the AMEX instead of OTC. Revett recently reverse split shares 5:1. Normally this would be bad news for a company but in this case is a huge step as they reverse split to consolidate shares in order to be listed on a major exchange, meanwhile they have no debt, and a strong cash flow. They have not lagged as much as Sandstorm, but it’s only a matter of time before volume surges on this stock. I’d recommend getting in while you can at $4.32. They’ll be pushing $5 and $6 before you know it.

Other producers that haven’t lagged but are still valuable are Endeavour Silver (EXK), First Majestic Silver (FRMSF) and Great Panther Silver (GPRLF). Indeed they have all had big runs, (First Majestic and Great Panther are up something like 100% in the last 3 months) but with the short squeeze in silver approaching, they are still underbought in the long haul. A little tidbit about First Majestic is that while they still listed on the Pink Sheets, their CEO has expressed that his main goal is to be listed on a major American exchange. Judging by the flood into FRMSF, I’d say that his goal is reachable in the not too distant future. This company could easily be pushing $20 by 3rd quarter next year.

Rising Wedge, Price Targets for Silver

Something I forgot to point out yesterday was the rising wedge pattern on the SLV chart. The wedge pattern is recognized when prices stay within a channel and makes higher highs and lower lows. It is a form of a bearish setup where price activity rises and reaches new highs faster than the last high after each low is made. It is also important that the reversal in the trend where the price breaks the channel is on high volume.

The price activity near the beginning of the move frequently touches the low points but hardly makes it close to the top of the price channel. However more recently, it has reversed course and begun to trade closer to the top of the channel, and in doing so, it gained the roughly same amount of points in two weeks than it did in the previous month and a half. Immediately after, it gained over two points again in just one week, confirming the wedge. The reversal came and on record volume, drove the price lower. I think if 24.06 breaks and sustains, then we could be looking at 21.97 as the next support level but I won’t rule out the bottom of the last cup, which rounded out in the 22.50 range.