SLV Week: Pop Or Drop?

London (Apr 2)  In a recent article on the iShares Silver Trust (NYSEARCA:SLV), we warned of upcoming volatility and possible downside risk, based primarily upon the very large short position that was reported at the time in the weekly Commitment of Traders report. We encourage the reader to review the prior article for commentary on how the commercial short interest correlates with price declines in the silver market.

Following that article, and consistent with recent history, the silver market sold off for two consecutive weeks. We believe that we at a similar juncture this week, although the pressure in the market has likely increased.

Why The SLV ETF?

Our overall strategy is to remain long precious metals in a nimble way, looking for any clues that the market may provide for near-term price direction. Beyond the trading of SLV, if you believe as we do that there is risk and stress in the financial system, then you should also consider your options for owning physical precious metals.

The value of SLV almost exactly mirrors the COMEX silver futures market. Since the futures market has considerably more dollar volume, and since it is open for more hours each trading day, we view technical analysis on the COMEX silver futures to be more relevant than technical analysis on SLV. Nevertheless, we like SLV for its accessibility and its liquidity.

Summary View

We entered last week flat on GLD and long SLV. GLD finished the week basically flat, and SLV gained 1%. We will enter this week long both GLD and SLV. The SLV position has been overweight hedged with April 21st puts at the 17.0 and 16.5 strikes.

Source: SeekingAlpha