Blood in the Streets - Update - KPMG Report Out!

Silvercorp has just been vindicated by KPMG.

In the morning the price opened at $8.91 (up from Friday's close of $8.13) going nearly straight up to $9.83, before falling back and closing the day at $9.62.

There short interest had fallen from 25 million to 10 million shares. End of July short interest was under 5 million share, while average daily volume is around 3 million shares, so there's still a great deal of shorts to cover.  Metals options expire on October 26, so we can expect volatility on the price of silver.  Chances are we will see the shorts cover when silver spikes downward.  (Basically, SVM prices should be supported on the silver down days, while moving upwards on the up days).

At this point, we are seeing buyers of SVM come in on the long side to catch it on the upswing.  If you day-trade SVM, selling SVM on the downswings, and catching it on the upswings, it's now possible that you may out of a position on a big move up.

Back around mid July, we saw a stock price of around $11+.  This could be considered a reasonable price for SVM (pre-short).  Given that the shorts must unload, which could result in a nice over-correction, it's possible that we could see $14-$16.  From the current price of about $10/share, that's a nice 40%-60% move.  Furthermore, SVM is about to release financials for Q2 2011 (FY2012) (ending Sept. 30, 2011) soon, which should give another boost to the stock price.

What could go wrong with this scenario?  Well, the overall market could completely tank, like in 2008, sending all stocks down by 40%.

So, the safest way to play this move is :
- BUY SVM (or SVM options)
- BUY a position in SPXU as insurance, should the entire stock market tank

If all goes well, then SPXU will stay the same, while SVM takes off for a 40%-60% gain, and at that point you should consider taking profits.

All of the above is for the short term (weeks to months).  In the mid to long term - months to years, many people believe that silver is undervalued, and has reached a local (intermediate) bottom, and could rise significantly from this point.  If you want to hold a long term stock, at current price levels, SVM could be one of the best deals of the decade.

Sometimes, the guys in the white hats win!