23/05/2011 – Is It Possible to Have Panic Buying?

On the other hand, “panic buying” is not easy
to see for what it is. The phrase seems to clash with itself.
People commonly assume that “buying” involves rational
choices by investors, who assess risk, calculate entry points,
establish stops, etc.

None of that happens in a panic. So how can you have “panic
buying”?

For starters, you have it when fear actually motivates investors
to buy. Whereas fear of loss motivates panic selling, investors
get in a buying panic when they’re afraid
of missing out on the profits they see everyone else making.

Such as, for example, panic buying in the silver market
from late January through late April of this year. Buyers
drove prices from $26.40 per oz. (Jan. 28) to $49.80 (April
25), a gain of more than 80 percent in under
three months.

You probably have a good idea of what followed in the first
week of May: more than half those gains vanished in four
trading sessions. The direction changed, but the emotion
did not. Fear inflated and deflated the same bubble.

This excerpt from Elliott Wave International’s free
issue of Global Market Perspective depicts
that panic.

The chart below shows that daily trading volume in the
exchange-traded fund, the iShares Silver Trust (SLV), surged
to a record 189 million shares on April 25, days prior
to silver’s
peak. Then, just a few days after the peak, on
May 5, it reached nearly 300 million shares, another record.
The first record was on buying fever, the second on a selling
panic. As shown on the chart, both levels far surpass the
daily trading volume in the S&P 500 SPDR (SPY), which
is generally the most heavily traded fund in the world.

Through Wednesday, seven out of the past nine days have seen
the daily volume in SLV outpace that of SPY. This is unprecedented behavior. “Day
traders are going crazy,” says the head of trading
at one brokerage firm. “Investors who felt they may
have missed the boat with gold have jumped into silver
because it has a better price point,” said a precious
metals analyst. A Bloomberg story attributes the rise in
SLV’s volume to “worries about inflation and
the weakness in the U.S. Dollar.” But the real reason,
in our view, is simply the same old mania story. Higher
prices in silver got people more excited about the prospects
of even higher prices, as they always do. The excitement
hit a speculative crescendo when SLV reached a new high
of 48.35 on April 28, unconfirmed by the price of the metal
itself.

Get the full story on Silver in the current issue of Global
Market Perspective in a Special Section, titled “A
Silver Bullet Sets Things in Motion.” You can get
the 100+ page issue FREE through May 31.
It includes analysis and forecasts for world stock and
interest rate markets, crude oil, metals, currencies and
more.

Download
your FREE issue of Global Market Perspective now.