first majestic silver

Silver Superspike

Technical Analyst & Author
April 16, 2006

As long-time subscribers to www.clivemaund.com are aware, I have a marked tendency to recommend the sale of things that become extremely overbought, which is generally a reasonable stance as I also have a similar tendency to recommend them long before they get to that state, in accordance with "The Prime Directive", which is to buy low and sell high. Thus, a wide range of silver stocks were recommended for purchase last year and early this year on www.clivemaund.com when they were on the bottom, includingAvino Silver & Gold, Coeur d'Alene, ECU Silver, Excellon Resources and Silvercrest Mines.

There are occasions, however, in the markets when humongous "once in a generation" superspikes develop, which are very hard to predict but stand out on the charts for years afterwards like monoliths. In the earlier stages of a superspike it is tempting - and normal - to take profits due to overbought limits having been attained, or exceeded, but these superspikes have no respect for normal parameters, and it is galling to make what seems to be a prudent sale, only to see the item you have sold go from one seemingly crazily overbought extreme to the next.

I'm not easily astonished these days, but I was pulled up sharp early this weekend by a truly astonishing chart sent to me by a very learned and experienced subscriber in California. This chart is reproduced in two sections below - it had to be split in half as an attempt to reduce its size to fit on the page resulted in serious loss of picture quality. The chart is self explanatory and reveals that, although silver is seriously overbought, it is in a similar technical situation to that which prevailed before the incredible superspike in 1979. Could we see a repeat performance? - well, yes, and if what is written about the fundamentals of silver by people such as Ted Butler is true, then we have fundamental justification for it, and some would argue that it could go significantly higher than in 1979.

With special thanks to Claude in California, the annotations and commentary on the chart are his.

Alright, so how, as speculators, do we handle this extraordinary situation? We know we are looking at a market which is already very overbought, but which has a fair chance of generating a super-spike, in defiance of normal overbought parameters, resulting in huge gains. I believe the correct way to handle this situation is to put ourselves in position to make massive profits should this market go ballistic, but, should silver turn tail and go into reverse, losses are kept at a modest and acceptable level.

The correct speculative vehicle for maximising profit potential from this situation, and minimising damage in the event that the silver does not continue higher over the short to medium-term is call options in selected silver stocks. Options have the supreme advantage in the current situation in that they provide massive leverage on capital employed, while strictly limiting losses to the "stake money".

Coeur d'Alene is viewed as the large silver stock with the most upside potential, as it is still at a relatively modest price, and is arcing away from a massive Pan & Handle base, which it is important to note that it hasn't broken out of yet - when it does its rate of advance can be expected to accelerate significantly. This base area was identified a long time back and it was strongly recommended on www.clivemaund.com before the high-volume January breakout from the base. It was recommended to take profits in Coeur about a week ago on the site, but it has not reacted significantly which was considered a danger at the time, and is thus in position for rapid acceleration in the event that the silver spike intensifies. A recommended Traded Option in Coeur is the September 7.50 at 0.75, a good price. The strike price of this option is not much above the current price of the stock, so gains should be immediate if the stock advances. Furthermore, a silver superspike, should it happen, can be expected to occur before the expiry of this option.

Other attractive Traded Option contracts in the large silver stocks are described in the full version of this article in www.clivemaund.com in addition to several silver stocks that look relatively safe here and set to do very well indeed should a superspike develop.

Does what is written here represent an about-face from the cautious stance adopted by the writer some days back? Well, partly, because I don't KNOW whether silver will react here or whether it will continue to accelerate to even more extremely overbought levels. Most reasonable people would agree that a cautious stance at this juncture is quite understandable in view of the fact that the superspike scenario described here is a very rare occurrence - a once in a generation event. The purpose of this article is to outline an effective way to put yourself in position to capitalize on a superspike BIG TIME should it occur, without having to "bet the farm" on it. If you follow the strategy outlined here you will make huge gains if the superspike occurs. If it doesn't, it will cost you, but not very much.

 

Clive Maund, Diploma Technical Analysis

[email protected]

www.clivemaund.com

Kaufbeuren, Germany, 16 April 2006

Clive Maund

Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.

Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.

The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.

Visit Clive at his website: CliveMaund.com


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