HardAssetsInvestor

Written by Drew Voros  |

March 30, 2012

Trader Larry Baer Sees Silver Sliding To Below $26 Before Major Snap Back

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Veteran technical trader lays out silver’s future according to his own charting strategy.

For a technical trader like 30-year veteran Larry Baer, trading charts based on his own strategy do more than show where a commodity has been. They also show where it’s headed. The Zaner Group senior futures broker recently spoke with HAI Managing Editor Drew Voros about how charts show sell signals for silver in a downtrend environment. However, Baer’s conclusion for silver is not bearish. He sees the white metal falling below $26 an ounce before beginning a major march to the upside.

Hard Assets Investor: In a recent blog, you identified silver’s sell signal at a close of $32.225, which happened today [3/28/12]. What brought you to this conclusion?

Larry Baer: I want to remind everybody that futures trading involves a substantial risk of loss and is not suitable for all investors. That said, I have a technical strategy that’s self-taught and it has some very common indicators that are legged along with some real-time indicators. Looking on the daily silver chart, the fat red line is the 20-day moving average and the green line is the nine-day moving average. There's a change in trend which happened when they crossed.

Then what I need is an up day; in other words, a green bar. An up day suggests to me that the longs or the bulls are taking control of the market. They were able to close it higher than it opened, so they have taken control that day. The trend is down. So if we can take out the low of an up day and close below the opening of that up day, then that suggests that the longs have lost control in a down-trending market, so I have a sell signal, and you're going to see lower prices in a lot of cases.

HAI: How low do you think it could go in the short term?

Baer: I'm a trend follower, but in the short term, I think that we have a good chance of seeing $31. And in the intermediate term, ideally, I think we have a chance of getting below $26. At that point, we will have gotten rid of a lot of the weak longs in the market, and I think somewhere down there, we will have a changing trend to the upside. And then we should see eventually substantially higher prices.

HAI: And why is that? Is it that you've cleared out the fast money?

Baer: I believe so, and there are going to have to be other things such as a weak dollar and inflation. But right now, I feel that a lot of people have been enamored with gold and silver as far as thinking it’s a flight to quality. At this point, it may not be a flight to quality. If we see a substantially weaker dollar, that would be the tip-off that we're going to see inflation and we're going to see higher prices in the precious metals. Personally, I feel that the tip-off on that would be a substantially lower 30-year bond. And when I mean substantially, I mean 10, 15 points, not a four- or five-point drop like we had earlier this month.

HAI: Do you consider yourself a pure technical trader? What about fundamentals?

Baer: I am primarily a technical trader. I follow the technicals and then I look for the fundamentals as a reason why the technicals have reacted. But I'm much more likely to take a trade purely on technicals than I ever would take a trade purely on fundamentals.

HAI: Do you think silver gets too much credit as a monetary metal?

Baer: I think gold gets too much credit as a monetary metal. There are a lot of commercial uses for silver as opposed to gold.