Briefly: I think that adjusting the short position is now justified. The adjustment means taking profits and closing the short position in the junior mining stocks and opening a short position in silver.

Mining stocks declined much more significantly than silver did recently, also during today’s pre-market trading and early in today’s session.

At the time of writing these words, the SLV ETF is trading at $20.81 and the GDXJ ETF is trading at $38.22. The downside target for the SLV ETF (based on the $19 - $20 target area for silver) is $17.40 - $18.35, and the downside target area for the GDXJ ETF is $34.84 - $36.67.

Consequently, the downside target area for SLV is about 11.8% - 16.4% below the current price, and the downside target area for the GDXJ is about 4.1% - 8.8% below the current price.

Therefore, the downside potential for silver appears to be significantly greater for the very short term than for the junior miners.

This may or may not be the absolute best time to make this switch, but the timing of making such a switch is like buying at the exact bottom and selling at the exact top – it’s much more important to get it more or less right, and to execute the trade, than it is to try to get the ideal price and perhaps not be able to execute the trade at all, as it seems that there might be an even slightly better opportunity just around the corner.

Still, it seems that making the switch now is justified from the risk to reward point of view. Of course, you can make that switch or you can stay in the current short position in mining stocks until its downside targets (as described in the previous analyses) are reached – the above is just my general opinion and not an investment advice. It’s your capital and you can use it in any way you want.

However, once I send out / post this Alert, I’m going to close my short positions in junior mining stocks and take profits off the table, and then right away I’m going to use that capital to short silver. I will use the ZSL ETF myself, however, this might not be the best choice for everyone as it’s a 2x leveraged instrument and not everyone wants (or should use) leverage.

Those, who want to short an unleveraged instrument, you could use the SLV ETF for example (shorting the SLV ETF). Some might prefer to use silver futures or even silver options, but this is something for more advanced traders only as usually it implies more risk. Those, who prefer to have a leveraged position, but don’t want to use futures or options, might be interested in using the ZSL ETF (it’s double inverse ETF, so it’s -2x leveraged, which means that one would be buying it to profit from decline in silver prices). A Canadian counterpart (also a double inverse ETF, which means that one would be buying it to provide from decline in silver prices) is HZD.TO. It’s not a recommendation to use any of those – just a general information that such instruments exist.

I will provide you with more detailed price targets for the SLV, ZSL and HZD.TO in tomorrow’s analysis.

Once again, to clarify, if I had short positions in mining stocks (junior mining stocks or senior mining stocks) or gold, I would close them and I would open short position in silver. I had only short positions in junior mining stocks, but I’m writing the above as a “just in case” scenario so that my opinion is clear. In a few minutes, I’ll be shorting silver, and not mining stocks.

After a rebound, I might, and probably will, return to short positions in junior mining stocks. Still, for now, I prefer to be shorting silver.

As always, we’ll keep you - our subscribers - informed.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief