Today was the first time I have ever traded SLV.  Or at least I cannot recall trading it previously.  In the past week I have read several blogs and watched a couple of videos related to the monster run that silver is on.  After the close today I interviewed some kid for the desk who asked me when this “bubble” in silver would end (fyi: i told him i was not qualified to answer that question nor did i care as a short term trader).

Four days each week I run the SMB AM Meeting where we discuss the “stocks in play”.  It has been blogged about ad infinitum as to why we trade these stocks.  Just google it if you are interested (notice that I used “google” as a verb potentially weakening Google’s trademark).  I almost never discuss commodities.  This is partly because commodity stocks in general don’t trade very cleanly intraday, but this is also because despite the monster runs in gold and silver these stocks are not In Play that often.  But today was different.

When I sat down at my trading station at 8:00AM SLV had already erased over one point of a 2.5 point overnight gap.  The stars were aligned for SLV to offer some great risk/reward trades today.  With the accelerating uptrend line in place, with a large overnight gap, with the blogosphere inundated with discussion there most likely was going to be a sh*t ton of action in SLV.  Joe “I hate active traders” Saluzzi (@JoeSaluzzi) even tweeted how crazy the volume was in SLV compared to the SPY QQQ and IWM today.

My “Spencer Sensor” had been fully activated and was ready to focus primarily on trading SLV.  I shorted a small position around 46.80 in the pre-market and then went in to start the AM Meeting.  I skipped over the Big Picture where I normally give a quick blurb about world markets and discuss recent SPY action.  I just wanted to start talking about SLV.  We had two key levels to watch.  47.30 where SLV had attempted to rally to in the pre-market and failed and 46.60 which was the pre-market low.

As the market opened I shorted some more SLV at 46.94 as there was quite a bit of selling pressure below 47.  I called out this info to those on our desk.  SLV quickly dropped to pre-market support.  When it retraced back up to 46.80 and was having trouble I added some size.  I placed my stop above 46.85 and then waited for the next down wave.

Once we cracked the pre-market low I knew we had a shot at 44.60 where it had spent quite a bit of time consolidating last Thursday.  The basic reason for this is human psychology.  Everyone is a hero when they see SLV gapping higher in the pre-market.  Its all “Buy Buy Buy” as Cramer likes to say.  But the moment they see it drop the pre-market low they all run for the exits as they know the stock has just made a ridiculous run and they don’t want to be the one’s caught long into a monster down move.

I got flat my short into the panic down move through 44.60.  I even got momentarily long to take advantage of all those who shorted into the panic down and invariably would squeeze it higher.  But alas I sold my long almost instantaneously for a small chop and called it a day.  It was as much fun as I’ve had trading a stock since August of 2009 when AIG was printing money each day.