Gold and Silver Update

Sorry for posting this a bit late. This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Also...a lot of this information relates to trading the actual commodities. There may be some terms or strategies that you don't recognize. This update is meant to be an information guide for those of you that are trading gold and silver...or just the gold and silver ETF's like the GLD or the SLV. This commentary is opinion and analysis. You must still use good money management and trade management principles. You must also read the charts. No one...I'll repeat...no one knows the exact future of any event on Wall Street. You must still do your due diligence. Thank you Chaz.

Good afternoon traders. WOW! What a week! I'm sorry I didn't get this out to you last week before Thursdays open. I meant to send it Wednesday night but travel and time constraints made it impossible. Several months ago, I wrote that it was probable that we would soon see swings in the silver market in excess of one dollar or more. A one dollar move up is $5000.00 profit on a contract or an "in the money" option. This probability has now been realized. I remember when a ten cent move was exciting. If you got excited about Thursday and Fridays action, then prepare to become hysterical. Because i am now telling you that we will probably soon see swings approaching $5 a day and eventually surpassing that. Yes, I said $5. That is $25,000.00 on a contract or "in the money" option. While I admit that I woke up sick yesterday and have been running fever off and on the last two days, I assure you that I am not delirious. Thursdays action was an important market changing event only a small percentage of traders understand. Lets look at the last seven trading days and I'll try to explain what did happen and what is MOST LIKELY to happen. We have several new readers this week. To those of you who are new, welcome and thank you for considering my humble opinion. I'm not always right as we are about to see but my track record is nothing to be ashamed of. Most of you know that I am currently taking a three part stock option trading course. I took this course due to a growing interest in trading stock options but also to see if I could adapt a strategy or two to commodity option trading. I wasn't disappointed. OK. Get your March silver chart out and follow along. On Thursday, Feb. 10, during class, the instructor expressed his view that silver and gold were likely to correct in the next few days and that I would probably disagree with him. I think he quite surprised when I told him that I, in fact, did agree. I went on to say that I had just taken profits the day before. How can this be, you ask? Everyone knows I'm very bullish on silver, you say ? A good trader recognizes that markets are in constant movement and that a trader MUST learn to adapt to changing markets quickly. A good trader must also learn to think like the institutional traders do and to trade like them. That means having short term and long term trades. A good trader will often have short term calls and puts as well as long term calls and puts. But that is very advanced trading skills that few of you are ready for so I wont go into it here.... The March life of contract high was on Jan.3rd at $31.27. The close was $31.12. This was the beginning of what we call an ABC top formation which means a correction should be expected if it completes the formation. The B part formed on Jan.28 with a low of $26.30 and a close of $27.91. On Feb 9th, I decided to take some profits on a small part of my position. The high that day was $30.27. Knowing that expiration was close at hand, it seemed like the correct course to take.The next day, the 10th, brought a lower high $30.27. I was certain a correction was going to take place. I took more profits. On Thursday the17th, silver broke above the life of contract high set on Jan 3rd. This happened late in the day, a little after 2pm CST. If I had held on to my positions I would have profited by many thousands more dollars. But I made a call and I stand by it.It made the most sense at the time. Then ,the market made a profound change one week before expiration. This burnt a searing image in my mind because I now know for certain that the shorts have lost control of their 31 year long manipulation of the silver market. Monday is a holiday. Trading will be in overseas markets only. Tuesday morning will likely see a massive attempt by the shorts to cover the March calls they sold to us, the longs. There are more than 53000 "in the money" contracts that will expire this week. Only 8000 need to stand for delivery to break the COMEX. Even if only 2000 demand delivery, the shorts will be panicking. I think we may see some amazing events this week. I don't know when those $5 swings will occur but I think everyone holding May options are going to very,very happy. Consider the following. Margin on metals have been raised seven times( I THINK that's right) this year alone. Remember what happened in the platinum market about 10 years ago? The market was so out of control that they had to raise margins up to TWO TIMES the value of the contract. Will that happen in silver? Probably. Something else to consider. Watch the dollar index. It's currently at 77.67. There is virtually NO SUPPORT below 77. WHEN it breaks below 77, it will go into free fall and the metals will roar. Did you know that silver is the only commodity that hasn't broken above its 1980 high? I think we may see that very soon. ....I still have a few March positions, a lot of Mays and even some offers on July. That makes for complicated trading which I don't recommend until you've taken some good trading courses and have a few years of trading experience. Nothing much to say about gold except that I believe the price will have minimal movement next week compared to silver. That's all for now. Happy trades......Chaz ....Sunday, Feb.20, 2010. 6:55pm