Hello and welcome back to CRI's CTS Spotlight,
092311: As the US dollar index continues to rally, one by one the commodity markets are being pulled back down to earth. From energy, to foods/fibers to metals, the US dollar denominated proxies are all correcting to reflect the currency change. This week's WCTS spotlight blog looks a Silver in particular. The only market that seems to be insulated from the correction are the meats and given the grain market's weakness - that may continue for some time to come.
Here then is the weekly continuous Silver futures price chart for the past few years. From the 2010 lows, this commodity tripled as the bull market 'went-parabolic'. The market eventually ran out of steam just under the historic $50/oz peak (from the last commodity cycle peaks in 1980). While there continues to be a 'fundamental' reason to own precious metals through this 17.5 year fear cycle (of which we currently are about 11 years in) one has to constantly put market moves (like we have seen over the past couple years) into perspective. Can a market keep doubling in price over and over again? Not likely. Unfortunately, the public (by definition always buy at the top and sell at the bottom) gets too enthusiastic and can't appreciate the simple fact that markets (even bull markets) can't always go up. Indeed, I might argue that the recent bullish sentiment within the metals space has gotten so overbought, a correction was long overdue. That correction is happening now. The markets are going down - not up. A trend that may only reverse once the public starts to hate the sector again. How much pain does that take? only time will tell...
Technically speaking, the weekly/monthly bull run in Silver has ended. Friday's 15% intra-day drop was not only a headline catcher but also represented a significant breakdown on the price chart. Specifically, with the move through 33.488, we now have a classic 'M' or double-top price pattern working/in-place. This zone will represent resistance going forward as those that bought in the past will look to get out get-out at break even. Additionaly, the trading range is so large, short term headline catching rallies may represent nothing more than a move into resistance. Specifically, one should be short from 33.488 with stops just above 43.82. While very few have that kind of risk tolerance (at $5.00/point $.10 represents $50,000/contract) it is important to appreciate that this market is no longer trending higher and is in-fact, trending lower.
So where do we go from here? one could argue the short term oversold condition suggests some kind of counter-trend rally is highly likely to occur. Please refer to Cri's day-trading blog for more on this. The 50% level (31.70) ought to represent an oscillation level in the near term given it's magnetic effects. But because of extreme market volatility a 5-10% swing in either direction (from where we are right now) isn't out of the question either.
New investors are best advised just to leave this one (and really all the commodity markets in general) alone until the US Dollar Index tops out. A bullish US Dollar Index suggests that fear is once again dominating the investing landscape and one really shouldn't 'play' in the market during times like these. This condition may persist for weeks, months or even quarters, but being bullish in commodities right now is literally swimming against the current.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSIthe_rational_investor@yahoo.com
http://www.the-rational-investor.com
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