Tuesday, June 7, 2011
For the past month or so, there has been a decidedly bearish trend for silver. Not only did the CME jump-start the process when they raised the margin and initial balance requirements last month, but even with the recent weakness in the U.S. dollar, silver isn’t being bought with any conviction.
Of course this is all about trading the position and may not apply for longer time frame – if you are willing to buy and hold for a months or years, for example.
Before studying the charts below, it is important to note that over the weekend,
Mark Arbeter of Standard & Poors was out with some analysis and comments about gold and silver.
“While we think gold has an outside chance to make new highs, we believe prices could fall to the $1,250 to $1,300/oz. region in the months ahead. Silver is in much worse shape, by our analysis, and is breaking down out of a bearish wedge. We think silver could fall all the way to the $20/oz. area before this correction is finished.”
(Simple math: $20 for silver is a 45% drop from here. Keep that in mind when looking at the chart setups below)
Credit Agricole was also sharing their bearish view:
Meanwhile, silver has pulled back in line with weaker industrial metals, with prices hovering around key support located at the 100-day moving average at $35.73, the bank says. “A move below this key level could prompt further liquidation and selling, which could see the market trading at the recent lows at $32/oz, but technically is still within a correction.”
CommerzBank recently provided an update and outlook:
“…the potential right now is that we see one step forward and two steps back in silver and I think it can continue,” said Commerzbank analyst Eugen Weinberg. “The real problem is the price increase before was overdone and the market was overheated… speculative investors have not yet exited (their positions),” he said, adding: “This is a situation where the tail is wagging the dog.”
…Looking ahead, if the current silver market keeps following the pattern made by silver prices in 1980, then we should look for a resumption of the decline starting in late June.
International Business Times had some Fibonacci levels to watch:
Once more, silver touched 38.2% seen on the image around 38.90 and couldn’t breach it. Bearish signs started to appear on momentum indicators which may bring more bearish pressure. Hence, the suggested Elliott count which has two probabilities for the wave from bottom of $32.30 reinforces the bearish direction. The general trend over short term basis is to the downside,targeting $26.65 as far as areas of 48.50 remain intact with weekly closing.
The chart below shows a different set of indicators than we have used in our previous analyses. This time, Japanese candlesticks were added to a daily chart. Of late, these have been an accurate predictor of the future direction for this commodity. In addition, the trend study (think of a parabolic study) accurately provided an alert of when the time was to get out for longs and is nowhere close to indicating moving back into a long position.
(Click to Enlarge)
How about the positioning and outlook of the non-commercial “pro” investors? The Commitment of Traders report from this week shows that there has been a continuation of long positions unwinding. At the same time, there has been a similar/equal covering of short positions. What that means is that on the way down, while the long holders have been selling in order to lock in “any” profits they may have, shorts have been covering. There was also a significant increase in the short holdings reported (and decrease of the net spread) this week.
The spread of shorts-to-longs has been increasing and now is at it highest point since the price top in April. Shorts are starting to gather conviction as silver has been unable rally and hold for more than a couple of days. That should put additional pressure on the price as long holders are still reducing positions.
There is one word of warning that should be mentioned here: We constructed a ratio of Short/Long holdings from the Commitment of Traders Report which shows that the ratio is getting a bit crowded on the short side. Historically, these kinds of spikes have been associated with key tops and bottoms. The chart below shows a history of the ratio of net short positions to longs, overlaid with the price of silver. As the orange line moves higher, the short ratio is increasing and visa-versa.
(Click to Enlarge)
Right now there is an unusually high ratio of short interest. That may be a signal worth noting. Add to that the technical backdrop as the 100 DMA has been solidly defended and there is a potential short squeeze which may imminent. Even if that does occur, it may be considered a rally worth fading.
Strategy: If there is a quick rally off of the 100 DMA, watch for overhead resistance at the next Fibonacci level of $37.67. A break above that will bring the 50 DMA into play at $39.43.
At that point, the best entry will be to consider initiating a long position on a clean move (and hold) above $40.25.
Until that level is breached, rallies are meant for adding/initiating short positions.
The chief of Malaysia's national oil company Petronas said Monday that global oil prices are too high and should fall back to between $75 and $80 a barrel.
While demand has surged, Petronas Chief Executive Shamsul Azhar Abbas said there was no real evidence of an oil shortage and that current prices above $100 a barrel appeared largely linked to speculation in crude markets.
"Given the current state of market fundamentals and the cost environment, I believe prices should remain within the range of $75 to $80 per barrel," Shamsul told a two-day Asian oil and gas conference.
Oil prices soared from about $70 a barrel last summer to as high as $115 this spring, and currently are hovering above $100. They were driven up by turmoil in the Middle East and North Africa, rising demand in developing countries and a weakening U.S. dollar.
The 12-member Organization of Petroleum Exporting Countries, which accounts for about 40 percent of the global crude supply, will discuss Wednesday whether to boost production to help lower prices.
Shamsul said a major long-term challenge would be to meet growing oil demand amid dwindling resources, and that companies would be relying on smaller fields and offshore fields to sustain production.
Meanwhile, Asia's oil demand has been projected to increase by two-thirds within the next 20 years. At this rate, Asia will have consumed more than 250 billion barrels of oil by then -- more than six times its current reserves of about 40 billion barrels, he said.
"There is truly no mistaking that Asia's dependence on energy imports and investments into other resource-rice regions will grow," he said.
Current developments in the United States and globally make hyperinflation almost a certainty, but you can protect yourself from it and even profit.
$1,500 Gold and $30 Silver are just harbingers of things to come and should the US suffer hyperinflation these numbers could triple.
I have written "U.S. Hyperinflation Is Coming Soon," a 24-page, 13,000 word analysis of economic, historic and social factors and suggested plan of action for investors. In it, I conclude that if your assets are stored primarily in U.S. Dollars, you need to act now to protect your family, wealth and future.
In April 2004 I wrote “The Perfect Golden Storm,” which described the forces driving gold toward and beyond its 1980 peak of $850. In April 2008, with gold already having reached $1,000, I wrote “Gold: $2011 by 2011,” which predicted that the bull market in gold would continue. By April 2011 gold had reached $1,500.
The current gold bull market is still in Phase I. Phase I involves gradual increases in the price of gold; Phase II, steeper increases; Phase III, a near vertical increase, followed by a sharp fall.
In Phase I of the 1977-1980 gold bull market, the price increased 25.8% the first year, 33.6% the second year, and 22.8% in the next six months (45.6% annualized). In Phase II, the price went up 84.5% in the next six months (169% annualized). Phase III lasted 20 days, during which the price spiked 66% (1,204% annualized)>
The current bull market, which has already lasted 10 years, is still in Phase I, with average annual increases of 20.3%.
In Phase II we are likely to see 50% annual increases over a period of about two years, taking gold to around $3,000. The complete Hyperinflation study explains Phase III, which would have gold reaching $5,000 or more with three or four months. I believe Phase III will occur by 2014. A US government decision to adopt a gold standard or start a gold confiscation program would accelerate this timetable.
The 1977-1980 gold bull market ended without hyperinflation. Very high interest rates and wage and price freezes sent the country into a recession and gold into a bear market. The U.S. is in a different place today, facing stiffer global competition and higher federal deficits and national debt, and committed to stimulating the economy through low interest rates.
During the 20th Century, 30 countries experienced hyperinflation. In every case, horrifying price increases that quickly wiped out the value of savings and of most forms of investment took people by surprise.
Economist Phillip Cagan famously defined hyperinflation as an average monthly price increase of 50% or more. At that rate, a $10 item costs $1,946 one year later. Most of the 30 nations that suffered from hyperinflation in the 20th Century followed the Cagan model.
Many of the factors that have led to hyperinflation in the past are present in the United States today. They include fiat currency, financing wars through debt, government bailouts of financial institutions, rapid increase in national debt, increased creation of money, and monetizing of national the debt (through Fed purchases of Treasury notes), wage freezes, and social turmoil.
U.S. federal debt is going up, with no end in sight. Standard & Poor’s changed its outlook rating on US sovereign debt from “Stable” to “Negative.” Bill Gross’s PIMCO Total Return Fund sold all the T-Bills in the fund. State and municipal budget deficits compound the problem, as do growing trade deficits.
The federal government claims inflation is running at about 2%. If the CPI were still calculated as it was in 1980, inflation would be running at just under 10%. The index of all commodity prices is up 230% in 10 years. The US Dollar Index is calculated against a basket of six other fiat currencies that have lost purchasing power. Nevertheless, from a high of 160, the USD has recently tracked in the 72-74 area. Governments that are in denial about inflation continue to feed inflation until it grows into hyperinflation.
In November 2010, President Obama froze the wages of 2.1 civilian federal employees for two years. Many states and municipalities are following suit. Tens of thousands of workers and students demonstrated in Madison, WI and even briefly occupied the State House to protest the termination of collective bargaining rights. Similar protests have taken place in Montana, Illinois, and Indiana. In California, New York, and other states, thousands of college students, faculty, and employees have demonstrated against cuts to education budgets.
Social unrest makes governments leery of taking economic measures, such as raising interest rates and tightening up on credit that might create more unemployment and generate more protests. Often, it drives them toward papering over the problems with money, bringing on hyperinflation and even more social unrest.
My study covers the history and possibility of US. Government Confiscating Gold or what is happening right now that could lead our country to creating a Gold Standard, and backing our currency with Gold.
By Barry Stuppler
The market continued its losing ways, as stocks extended their losses late in the day. We've been saying that we were expecting the market to be weak this summer, and thus far that is playing out as the economic data has been lackluster. However, at this point we still think this is a small pause, and we're continuing to look for a fall rally. As such, we think it could be a good time to start accumulating shares of favorite stocks later this summer. However, we're expecting more downside in the near term first.
The Drug Distributor Stocks Index was the top performing tickerspy Index on the day, led by AmerisourceBergen (NYSE:ABC - News) with a 0% gain. The Chinese IT Stocks Index was the day's worst performing tickerspy Index, with China Information Technology (Nasdaq: CNIT - News) down -15%.
Stocks fell on the day, with the Dow off -61 points to 12,090. The S&P dropped -14 points to 1,286, while the Nasdaq tumbled -30 points to 2,703. Oil slipped -$1.21 to $99.01 a barrel, while gold rose $4.80 to $1,547.20 an ounce.
In stock-specific news, shares of biotech firm Exelixis (Nasdaq: EXEL - News) plunged -20.2% after the company reported trial data over the weekend that indicated its experimental cancer drug cabozantinib caused six patient deaths in clinical trials. The deaths represented 1% of the treated group. Cabozantinib is an oral drug that limits blood supply to tumors and blocks two segments of a pathway used by cancer cells to grow and spread.
Shares of medical diagnostics maker Gen-Probe (Nasdaq: GPRO - News) slid -12.7% after The Wall Street Journal reported that Novartis (NYSE: NVS - News) might be the only company remaining that is interested in acquiring it. Gen-Probe shares had risen sharply after the company put itself up for sale, and partner Novartis was believed to want to keep the company out of the hands of competitors. With no other bidders, however, Novartis' interest might wane. Six pros counted Gen-Probe among their top holdings at the end of Q1 and nearly 50 tickerspy members own the stock in their portfolios.
Shares of motorcycle maker Harley Davidson (NYSE: HOG - News) jumped 2.8% after UBS said May sales for the Wisconsin-based company rose 10% on a year-over-year basis, and that it expects double-digit sales growth in June as well. The firm's analysts gave the stock a short-term "buy" rating and a $39 price target, but maintained a longer-term "neutral" rating on the stock. Eleven pros counted Harley Davidson among their top holdings at the end of Q1 and nearly 340 tickerspy members own the stock in their portfolios.