Wednesday, 20 July 2011

Thoughts On Silver & EOD Market Analysis.

In world of bubbles, silver has a special place. Although it is less expensive than gold but the bugs have the same logic for the infinite upward mobility for silver as they have for gold. Many arguments are forwarded in its favour. For e.g. because in the past 5000 years, human being have used silver as well as gold as money, so we must now own them anyhow. Because it seems US Dollar has lost 92% of its purchasing power and it will soon be useless.So on and so forth. My point is not to compare gold and silver against US Dollar or Euro. All I am trying to say is that Gold and Silver do not represent value investing at today’s price. I shall buy gold possibly at $ 1200- $ 1300 range if it is available. May be I shall have to wait till end of 2011 but I am not going to chase gold when it is $ 1600. It does not represent value to me. To me, precious metals are just another asset class and if I see value, I shall invest.

Let us keep in mind, gold increases in value before the crisis. During the crisis, people sell gold. If we are living in USA, we will still need dollars to buy stuff and when everything is gone, we shall have to sell gold if we have it. Same logic applies to the large speculators and funds. In crisis, people will go for liquidity and sell everything. Even their best assets.

Our memory is short-lived. Almost like a gold fish.  People forget that Silver had a violent correction in last May. So I do not expect the gold and silver bugs to remember what happened in 2008. I am not even going to the era of Hunt brothers. To help freshen up the memory of the momentum chasing precious metal bugs, I have borrowed two charts from my friend Eric Swarts of Market Anthropology.

The 1st chart is 2008 SLV daily and the 2nd chart is 2011 SLV daily. In 2008, SLV retraced 50% of its downward move in the 1st bounce and in total of 61.8% of the downward move in all its bounces before it tanked to $ 16 and below.
Compared to that , in 2011, so far, SLV has not even covered 50% of the retracement level in all its re-bounce efforts. To quote Eric: “ If the market remains consistent with its proportions - and as indicated in the degree of relative strength exhibited yesterday, the 50% fibonacci level may prove to be a very tough level to overcome

The precious metals got a boost after Ben told congress that some members of Fed thought that there could be more monetary easing if the economy does not improve. Speculators jumped in joy. And the uncertainty with Euro and debt ceiling has helped the speculators to create a dead cat bounce. But  time is now running out.  I am putting my neck on the block and I am calling out the TOP in precious metal by end of August. After that I shall purchase calls on ZSL.

Enough of precious metals for now. Let us look at what happened in the stock markets today.
Today’s market action can be considered as a kind of consolidation. SPX was down by less than 1 point. Although I consider that as positive for the bulls, I would have liked it more to the downside. The oscillators are in sweet spot. MACD is in positive territory and McClellan Oscillator is not showing any danger signal.  However the US $ has broken support on the downside. After the market closed Euro raced up to 1.4265. (In my morning post, I said that Euro will more likely go up.) Germany and France are presenting a joint plan for Euro and the market seems to like it so far. But much can change between now and trading in the morning.

I would like to see a pullback of 10-15 points in SPX in a day or two. Such a pullback would be a buying opportunity in the short term. 

1 comment:

  1. Hi, i agree on the overall timing, but i think silver will take a mild breather here, perhaps to gather steam for the next leg up