The Morgan Report Blog

The SPX, Oil, Silver, & Geopolitical Risk

“You can’t lose what you don’t put in the middle.” Mike McDermott, Rounders

While this week was shortened due to the President’s Day holiday, it has been quite a ride for traders and investors. The 24 hour news cycle certainly intensifies current market conditions as any news focusing on oil or the Middle East protests moves markets. Thursday the International Energy Agency came out and indicated that the expected drawdown in crude oil supplies coming from Libya was being exaggerated. Immediately upon the release of this information light sweet crude oil got hammered and stocks rallied from day lows.

By now most market prognosticators and the punditry will be out declaring that oil prices are going to continue lower and equities are on sale and primed for a snapback rally. I’m not sure that it is that easy. Mr. Market makes a habit of confusing investors with mixed signals. One thing is certainly clear from the recent price action, rising oil prices are not positive for equities here in the United States. What is also clear when looking at the Massachusetts Institute of Technology’s (MIT) version of inflation data (http://bpp.mit.edu) for the United States, it becomes rather obvious that inflation continues to ramp higher in the short term and also on monthly and annual time frames.

If inflation continues to work higher, it would be expected that light sweet crude oil futures prices would work higher as well. The dollar index futures have been selling off while oil and precious metals have rallied until the IEA news came out on Thursday. What should be noted from the recent uncertainty in the marketplace is that the U.S. Dollar Index futures did not rally. This is the “dog that didn’t bark.” During recent periods of market uncertainty such as the European sovereign debt crisis, the U.S. Dollar was considered a safe haven. This most recent market uncertainty caused by political instability in the Middle East has seen the U.S. Dollar Index futures sell off while gold and silver rallied as investors looked to the shiny metals for safety.

So what do all of the mixed signals relating to financial markets really mean? It’s simple, the U.S. economy is not on solid ground, rising oil prices will damage the economy, the world does not necessarily view the U.S. Dollar as a safe haven, and inflation is rising. With all of that being said, what if this is just the beginning of a major rally in energy and the metals? What if prices are going to pull back to key breakout levels, test them successfully, and probe to new highs? As can be seen from the chart above, the U.S. Dollar Index is poised to test recent lows. Should price test the lows and breakdown, oil and the metals could rally in lockstep in a parabolic move.

The daily chart of light sweet crude oil futures illustrates the breakout level that oil prices surged from.

I am expecting a test of that level at some point in the near future. If that level holds, oil prices could be poised to take off to the upside. If prices were to move considerably higher it could place downward pressure on equities and would correspond with the U.S. Dollar cycle lows which are expected by most sophisticated analysts sometime this spring. The intermediate to longer term fundamentals in the oil space are strong and technical analysis could also affirm higher prices very soon. If we see the key breakout level hold and a new rally takes shape on the heels of a lower dollar, the equity market could be vulnerable.

The next few days/weeks are going to prove critical as a lower dollar could change everything. A quick look at the silver futures daily chart illustrates the key breakout level which will likely offer a solid risk / reward type of setup.

As can be seen, silver has had a huge run higher and has broken out to new all-time highs. Gold has moved higher but has yet to breakout and could play catch up while silver consolidates. Longer term I remain bullish on precious metals and oil, but volatility is likely to increase in both asset classes going forward, particularly if inflation continues to increase. Patience and discipline will be critical in order to enter positions where the risk / reward validates an entry.

As for the equity market, it remains to be seen what we will see next week. I am not convinced that the issues in the Middle East are over and that oil is going to come crashing back down to previous price levels. Oil has broken out and if the breakout levels hold I would expect a continuation move higher. If we see price action in oil transpire in that fashion, equities will be for sale and prices could plummet tremendously.

I will be watching to see how much of the recent move lower is retraced. If we see a 50% retracement and prices rollover the S&P 500 will likely be magnetized to the 1275-1285 price range. If that price level is tested and fails, we are likely going to see a 10% correction and potentially more. The daily charts of SPX listed below illustrate the key Fibonacci retracement levels as well as the key longer term price levels that could be tested if prices rollover.

While lower prices are possible, if we see a retracement of the recent move which exceeds the 50% retracement level in short order prices will likely test recent highs and begin working higher yet again. The price action on Friday and next week is going to be critical to evaluate as many traders and market participants are going to be watching the price action closely looking for any clues that might help indicate directionality.

For right now, I am going to be patient and sit in cash and wait for high probability low risk setups to emerge. As I have said many times, sitting on the sidelines can be the best trade of all!

Get My Trade Ideas Here: www.optionstradingsignals.com/profitable-options-solutions.php

JW Jones

Silver and the Minimum Wage

Many of us who write about the precious metals field have put out their 2011 forecasts and predictions for the New Year. This writer is no exception, but it seemed to me that it might be nice to look at my mission statement and determine if I could compose a simple story that might engage the reader to think about the current dire state of affairs in the economy and how an honest “money” system might help on an individual basis.

My mission statement is, “To teach and empower people to understand the benefits of an Honest Financial System.” Although the words gold and/or silver are not even mentioned in my mission statement, they are both very important components in an honest money system—they instill trust.  And the lack of trust is the core issue of today’s economic problems. Our banking institutions and well established investment firms do not trust each other, and the system is grinding down.

Looking back in time I found some very interesting facts regarding Henry Ford and the typical North American autoworker. On January 5, 1914, Ford announced that Ford Motor Company employees would receive a minimum wage of $5 a day, more than double the average pay available at that time. This date is just within days of the Federal Reserve Act that Congress passed during the Christmas Holiday in 1913. Basically, Congress relinquished its constitutional power and duty to “coin Money and regulate the Value thereof,” to a private banking cartel, the Federal Reserve System.

Wasn’t this action was a blatant overthrow of The Coinage Act of 1792?  Which had been signed into law by President Washington and defined the “dollar” as a coin containing 371.25 grains (troy) of fine silver. This Coinage Act of 1792 established the monetary system the Founders had outlined in the Constitution. (See: what is a dollar?)

So, getting back to the Ford example, what would happen these days if Ford Motor Company decided to pay their employees 5 “honest” dollars a day? Could this be accomplished? For purposes of this article let us round a real dollar to 0.75 troy ounces of silver. Additionally, I am going to use 200,000 as the Ford employee base per Ford’s website for 2009.

Therefore 200,000 employees at $5 (~3.75 troy ounces, based on the Coinage Act) per day would be equivalent to 750,000 troy ounces per day! This implies within a one-month time frame (~22 working days) a total of more than 16 million ounces. This would be ounces paid in the good old days!

What about more recent times say Of course if we check the recent data we find the average pay per employee to be around $30 per hour. We can see that the current price of silver is roughly the same $30 per ounce. So, quite easily we might state one ounces per hour, or 8 ounces per day. So we would have using current silver prices, we have 48 million ounces of silver in used as payment in ONE MONTH!

Much has been made about the “little” guy coming into the silver market and what it could do to the market. I think the above example might give pause to those of us that trust tangible money versus private script. Certainly I cannot state that any major corporation would seriously consider paying honest money to their employees for even as little as one month. But it is not entirely out of the question that 200,000 people decide to put away one month’s worth of wages in the silver market.

Times are changing rapidly and as things continue to worsen with the Federal budget some states are looking at options that might help them. We might say at a state level, people are beginning to realize that the system has failed them. In fact in the past some states have tried to enact silver coinage into legislation, so far this has failed but we note, Idaho, Nevada and New Hampshire have tried in the past, and a few years back Senate Bill 453 was purportedly introduced by Greg Walker, a state senator from Indiana.

In conclusion, 2011 may turn out to be a year where one primary question is not so much who can we trust, but what can we trust?

David Morgan

Silver Fallacies

I read an “advertorial” suggesting silver to be a fantastic investment, and I could not agree more. However, the author was stating that all short positions have to eventually be covered with physical silver and that when this took place there would be a price explosion.

It is a fallacy that all short positions have to be covered and the shorts will have to buy silver to cover. First, to state that all positions have to be covered is misleading; a position can remain open for a very long time, because as the contract becomes due, it can be rolled over. Technically, it is not the same position, because when it is “rolled forward,” it is a different month and involves a different contract, but basically the contract is moved out to a later date. This rolling takes place all the time in the futures markets.

The second fallacy is more important because almost all the shorts in the silver market can close their positions with cash, no silver required. Let’s say silver moves UP fifty cents in one day and you are short the market. You just had what is known as a bad day. You will get a phone call from your broker asking you for more money to be placed into your account. You can instruct your futures broker to close out your short positions and all you would be responsible for is a check, not silver. This does not mean that a price explosion to the upside cannot take place. However, it is important to recognize that if physical silver were required to cover the short position the price movement could be far greater!

Yes, silver does get purchased and moved off the exchange, but this is only about one to two percent of all the activity as represented by market activity. This is another area not very well understood. Each month the CFTC publishes delivery notices, but these are notices, not actual deliveries. Many in the industry know that some of these delivery notices are NEVER acted upon! Yet we see some pretty well respected Internet sites that proclaim so much silver was gulped up off the exchange. This is not true; other notices and/or paper swaps or transactions offset most notices. In simple terms, there could be “notices” for several million ounces of silver in a given delivery month, but when all is said and done not much has really happened. Oh, let me restate: a whole lot has happened on paper but not much in a physical way.

Yet, with all this paper silver flying around, the physical market is the most important and will at some point drive the price, no matter what the paper pushers intend. Since the world’s financial system is becoming so stressed with bad debt that cannot be repaid, institutional and retail investors alike are seeking higher quality investments. First, this will translate into government-backed debt (bonds), and certain currencies will become the flavor of the month. For example, the euro or Canadian dollar will be favored, but all of this “money movement” is really the last vestige of the bankers selling people on the idea that paper currency is safe if only you are smart enough to choose the right paper currency.

As the carry trade unwinds and a new era of quality replaces one of quantity, the precious metals will reassert themselves in the overall financial landscape. Gold will be sought by institutions and, yes, even the central banks again at some point, but silver is held by few governments — China and India being the only two — and both hold pitifully small amounts of silver at this point. The once vast silver holdings of the United States of America were depleted several years ago.

As momentum builds and more and more precious metals are purchased, the prices will be reflective of these purchases, and since one of the main purposes for purchasing will be wealth preservation or financial survival, don’t rule out the underdog — silver! You see, big institutions, banks, and the elite will flock to gold, but remember “the poor man’s gold”? Literally, millions of people have something to protect and these people will flock to the safety of the physical silver market.

This buying frenzy will drive the price far higher than most people imagine at this point, since there are far more “poor” people than rich people and since there is far less silver than gold available in investment form. The percentage gain in silver and silver related investments will be noted in financial history, just as the silver “corner” by the Hunt Brothers was in 1980!

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Bear Season in the S&P 500 & Oil

Mr. Market has had an appetite for S&P 500 bears for several months now. In each  instance in which the bears think they are going to get away, Mr. Market draws up his high powered rifle and drops the bears just before they can comfortably return to their caves. Just when the bears think they have escaped and are home free, Mr. Market reminds them who is in charge.

However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.

S&P 500

With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is:

 

As can be seen above, 82.73% of all stocks are currently trading above their 200 period moving average and over 68% of equities are above the 20 and 50 period moving averages. While this certainly does not mean that prices are going to rollover, it is hard to refute the conclusion that prices in the equity market are overbought.

A quick glance at the SPX daily chart reveals the recent price action.

It is obvious when looking at the SPX daily chart that prices are extended to the upside in this bull market run. However, as I pointed out in a recent article the distance between current price action and the 200 period moving average is significant. There is a total of 167.79 SPX points between Friday’s close at 1329.15 and the 200 period moving average at 1161.36. Based on Friday’s closing price a reversion to the mean (200 period moving average) would produce a decline of around 12.62%. The SPX weekly chart is shown below:

 

It is worthy of note that the May 2008 swing high of 1,440 coincides with the upper band of the rising channel that is obvious when looking at the weekly chart of SPX. While price action may or may not get to SPX 1,440 during this bullish run higher, it is likely not coincidental that both key trend lines coincide at the same price point. The intersection of the long term rising trend lines corresponding with the upper band of the current rising channel and the 1,440 swing high may be something of import, or it might turn out to be nothing. However, it certainly is an eery coincidence on the chart if you believe in coincidences.

I am still convinced that stocks need to pullback at some point if they are to continue higher. Consolidation or a 5-10% correction would likely be healthy for the market and might prove to be a launchpad for another thrust higher in price. From the underlying strength in the domestic market, a correction or pullback will likely be an opportunity to get long barring price breaking down through the lower level of the rising channel located on the weekly chart.

I am not sure that I am going to get involved in the short side if we see bearish price action in coming weeks, instead I will likely be looking for opportunities to get long equities at more attractive prices. Right now risk to the downside appears to be increasing as the S&P 500 continues to probe higher.

Light Sweet Crude Oil

Oil prices surged when Egyptian protests intensified and have sold off recently as President Mubarak has stepped down and demonstrations have turned into nationwide celebrations. In addition, the U.S. Dollar has strengthened considerably the past few days which has also put price pressure on oil. The daily chart of light sweet crude oil futures is illustrated below:

Oil price are hanging onto a key support level by a thread and price action in the coming week could see prices push lower through the support area and an eventual test of the 200 period moving average. I am not considering a short in oil, but I am looking at lower prices as a solid risk / reward long entry. I am going to be patient, but envision building a longer term trade using options to profit from a possible rally after putting in a clear bottom.

Right now, price could hold above current support levels and bounce higher, but I think the more likely scenario is a brief bounce early this week and then a flush out lower running stops and reaching panic level selling. As is customary for my trading methodology, I will be looking to buy into panic selling should that take place, however at this point I am not interested in getting involved just yet. I intend to remain cautious and will patiently wait for a low risk, high probability trading setup to emerge. Until then, I will be watching the price action from the sidelines letting others do the heavy lifting.

Conclusion

While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. The question continues to remain how long will Mr. Market punish the short traders in equities while rewarding them in the oil futures pits. Mr. Market may be losing his appetite for bear meat in equities and he might just decide to feast on some bears covered in oil. Time as usual will be the final arbiter, but for right now I’m sitting on the sidelines waiting for Mr. Market to tell me his next order. 

Get My Trade Ideas Here: http://www.optionstradingsignals.com/profitable-options-solutions.php

JW Jones

Cheviot Sound Money Conference

Just want to post a few pictures from my London trip. Enjoy.

High Altitude Bombing in Oil

At the risk of stating the obvious, the recent market action in the commodities has been manic with wild gyrations of price in a wide variety of basic materials, metals, and energy. Given these wild fluctuations in price, I thought we could look at an options trade in USO that gives a high probability of success.

In order to give a bit of a conceptual framework for this sort of trade, let me share the way I look at these. Development of precision high altitude bombing during World War II resulted in a dramatic reduction in casualties while inflicting devastating consequences to enemy forces. I view the sort of option strategy described below as the equivalent of high altitude precision bombing. We will extract substantial profit without putting ourselves at high risk of damaging anti-aircraft fire.

As is shown on the daily price chart below, there is substantial support in the region of 35.60-36 provided by a recent swing low and the 200 period moving average.

Given the current low volatility, let us look at a strategy that gives us substantial profit from an altitude of 50,000 feet and the ability to roll the trade forward for additional substantial profit. This trade is structured as a “ratio calendar spread”. Now don’t go getting hung up on the name, it is simply a two legged trade in which we buy a longer dated in-the-money call and sell a smaller number of out-of-the-money calls. The trade is diagrammed below:

For those getting used to these sorts of trades and trying to form an organizational framework, the trade can be thought of as a basic calendar spread where an additional contract of the long options is purchased. The addition of this extra contract removes the upside limit on our profitability which would exist in an ordinary calendar spread. As is often the case in option trading, this trade can also be thought of as a “first cousin” to a covered call structure where the long in-the-money contracts serve as a surrogate for long stock. I find it helpful to think of the various option constructions as individual members of several different families. Each family has a number of “family traits” that help make sense of the large number of potential constructions available to the options trader.

One of the characteristics of this family under discussion is the “Sham Wow” factor- “but wait-there’s more”. The “more” in this trade is the ability to “roll” the short calls forward as they expire or, more prudently, as they reach inconsequential value. For example, this trade would have been initiated by selling the February 37 calls at a value of around 57¢. When these calls reach minimal value, let us say 10¢ for discussion, they could be bought back, and the March calls sold to capture substantial additional premium. This process can continue for April, May, June, and July. These additional sales give the opportunity to reap additional profit for the trade.

The risks in the trade are:
1.USO breaks support and continues to sell off
2. Volatility collapses on the long leg of the trade

I have discussed both of these factors in the price chart and volatility chart above when I was developing the logic of the trade. While no guarantees exist for the behavior of either price or volatility, the current trade represents a reasonable balance between risk and probability in my opinion.

As with all our discussions, these considerations are presented for educational purposes and do not represent a recommendation. This is not a solicitation nor should it be considered financial advice. I am simply trying to demonstrate how to use the knowledge of option behavior to construct trades that benefit from high probability events. Bombs away!

Get My Trade Ideas Here: http://www.optionstradingsignals.com/profitable-options-solutions.php

J.W. Jones

Changes to The Morgan Report

David Morgan makes a return to the Ellis Martin Report to discuss his outlook for the next six months in the precious metals market. He also teases a mention of a new potential opportunity in the form of a potentially undervalued company in the sector. Upgrades have been made to www.silver-investor.com and The Morgan Report.

Wilderness of Mirrors

Wilderness of Mirrors

Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

Access to raw materials has become essential to the functioning of all industrialized economies. Threats to access and distribution of these commodities could include:

  • Political instability of supplier countries
  • The manipulation of supplies
  • The competition over supplies
  • Attacks on supply infrastructure
  • Accidents and natural disasters
  • Climate change

Every country imports and exports raw materials to one degree or another. As raw materials are the essential’s for a country’s survival, development and progress, everyone is looking for permanent, secure suppliers. A very worrying, and growing trend, is that countries rich in resources are limiting the availability of raw materials – commodities that are the building blocks of modern societies – in order to support their own industries. Such export restrictions could start confrontations over scarce resources.

Countries can restrict the export, or subsidize the import of, raw materials by means of:

  • Export taxes
  • Export licenses and or quotas
  • Operating dual pricing schemes
  • Subsidizing the import or local purchase of raw materials

Inflation is a factor and is already infecting commodity prices.

We’re heading to a very inflationary environment. US President Obama is promising trillion dollar deficits for years to come and the US dollar is still the world’s reserve currency. With all exporting countries trying to keep their currencies weaker then the US dollar – to make their exports competitive – the inflation rate is going to rise much higher.

Whenever governments are creating money and spending to excess inflation rears its ugly head and investors move into hard assets. The best hard assets to buy during these periods are commodities.

Our reality is we’re living on a relatively small planet with a finite amount of resources, climate change is increasingly playing a role and we have a growing human population. Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. There’s no doubt in this author’s mind we are going to see much tighter supplies of, and higher prices for, commodities.

It’s a fact in the mining world that most discoveries are made by a) junior mining companies and b) old time individual prospectors. In this author’s opinion junior resource companies offer the greatest leverage to increased demand and rising prices for commodities.

If  I was looking for superior investment vehicles to take advantage of what I think I know regarding the future for commodities I’d be looking at junior resource companies, not majors, involved in the search for, and development of, the worlds future sources of commodity supply – majors are exposed to various industries such as:

  • Storage
  • Transportation
  • Refining
  • Chemical processing
  • Retailing
  • Distribution

Which are not correlated directly to specific commodity price rises like junior resource companies can be.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines. They already own, and find, what the world’s larger mining companies need to replace reserves and grow their asset base.

Junior resource company’s serve an important role in the commodities markets – they feed the supply chain. 

In 1996 the whole junior bull market was centered around Bre-X. Then there was the technology stock boom based on the greater fool theory. The last bull market run for junior companies started in 2002 and imploded in 2007/2008. The TSX (and TSX.V) has experienced three major boom and bust cycles in the last fifteen or so years. This author believes we are on the cusp of another bull market run for junior resource companies.

In a wilderness of mirrors, who can you trust?

“Wilderness of Mirrors” is a phrase coined by the 1950s era counter-intelligence chief John Foster Dulles to describe the intelligence game. In particular, the phrase refers to the difficulty of separating disinformation from truth.

The opportunities in the junior resource sector are significant. But the junior population is quite large and there are literally thousands of stocks to choose from that want your dollars. 

There is a steep learning curve and there are serious risks – great rewards come hand in hand with great risk. You must be prepared to do your own due diligence and uncover the opportunities.

You must be able to evaluate these opportunities, pay regular attention to your portfolio, manage the risk and take responsibility for your own decisions.

I keep a vigil in a wilderness of mirrors
Where nothing here is ever what it seems

Vigil in a Wilderness of Mirrors by Fish

Is the junior resource sector on your radar screen? If it isn’t, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about the junior resource market please come and visit us at www.aheadoftheherd.com.

Membership is free, no credit card or personal information is asked for.

***

Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any company mentioned in this report.

No company mentioned in this report is an advertiser on his website aheadoftheherd.com.

Precious Metals and the Dollar’s Next Big Move Part II

We have seen some exciting moves in the market and with the market sentiment so bullish it should make for a sharp selloff in the coming weeks. Meaning everyone is overly bullish and owns a lot of stocks and commodities; therefore the market should top and leave them holding the bag while the smart money runs for the door. The market will not bottom until all of these individuals holding the bag finally cannot take the pain of losing any more money and once we see them panic and sell them all at once only then will we be looking to go long again.

The past couple weeks I have been bombarded with emails asking if gold and silver have bottomed and if they should be buying more on these pullbacks. Those of you reading my work for the past few months know that my analysis clearly has shown how both gold and silver have been topping out. There have been strong distribution selling and price patterns on the charts are also clearly signaling a top was near.

A couple weeks ago I posted an important report covering gold, silver and the US Dollar and where  the next big moves will be. Well it’s time for another update on Gold, Silver and the Dollar as they have come a long way from my last report.

Take a quick look at my previous charts here for 15 second recap from where we were and are now: http://www.thegoldandoilguy.com/articles/precious-metals-and-the-dollar%E2%80%99s-next-big-move/

Ok let’s move on to today’s charts….

Silver Daily Chart
Silver has formed a very nice looking top and it is now trading under its key moving averages. It is also currently testing a key resistance level after Friday’s bounce on the back of fears in Egypt. Unless something happens internationally I figure silver sill continue its trend down.

 

Gold Daily Chart
Gold is doing the same as its little sister (silver). I feel the general public is still very bullish on metals and before we see higher prices (new highs) the market will have to shake the majority out of their positions first. At this time gold looks like it should test the $1285 level. Depending on how long it takes to get there and the price action it forms in the following days that outlook could change but expect sellers to step in at the $1350-1355 area.

 

US Dollar 2 Hour Chart
The dollar has been grinding lower the past two weeks forming a falling wedge reversal pattern. It’s also important to note that on the daily chart the dollar tested a key support level last week. This should be an interesting week for the dollar and the rest of the market simple simply because when the dollar makes sharp movements it pushes the price of stocks and commodities around in a big way.

I am looking for a multi week rally in the dollar possibly longer but with small pauses or corrections along the way.

Pre-Week Metals and Dollar Trend Analysis:

In short, I feel gold and silver are nearing a short term resistance level and will find selling pressure in the coming days only to continue on their journey down for a few weeks. The dollar on the other hand broke out of its falling wedge on Friday and could have a strong rally for 2-3 days. I feel most traders and investors have been shorting the dollar for two weeks straight, so once they realize it’s going higher there will be a ton of short covering and the dollar should rip higher.

This shift in the Dollar from down to up has a direct effect on the SP500 and subscribers of my newsletter are going to take full advantage of these next big moves in the market.

If you would like to get my daily trading analysis and trade exactly what I am trading please join my newsletter here: http://www.thegoldandoilguy.com/free-preview.php

Chris Vermeulen

Gold is bottoming and longs soon to be rewarded

Gold is bottoming and longs soon to be rewarded
Dave Banister- Feb 1stwww.marketrendforecast.com

My more recent forecasts for Gold were intermediately bearish from the $1390’s area as we saw a clear triple top breakdown from the 1425-1430 ranges about 8 weeks ago.  However, the drop to $1310 fulfills a potential Fibonacci pivot low according to my Elliott Wave views on Gold, and investors can begin building long positions with the following views in mind if I’m right.

The rally up from the February 2010 $1,044 lows has been a large “Wave 3” structure which is not yet complete.  We have completed 3 of the required 5 waves for this structure, and the current correction is a 4th wave.  This pattern looks like what I call or Elliott termed a “3-3-5” pattern.  This means you see 3 waves down, 3 waves up, and then 5 waves down to complete the correction.  Note below the chart I sent my subscribers several days ago forecasting a possible pivot at $1310:

 

Now, as you can see above we did end up dropping back down from $1,345 an ounce to $1,310 last week and pivoted higher. This confirms a possible 4th wave bottom after a 7-8 week correction period. This type of movement works off the overbought sentiment levels of traders.  In addition, we had the exchanges increasing position limits in the New Year and caused some additional liquidation selling.

The long term views now are for $1287 to hold as a worst case bottom in this 4th wave, and the 5th wave to begin if it has not already to over $1,500 per ounce at the next interim highs.  I expect this could take quite a few months before we can even consider attacking the $1430 areas, but in time we should climb back above that wall.  See my updated long term Elliott Wave based chart below.  The general advise for traders is to take a long position with a stop at $1285, but add to your position on any tests of $1310 and down to $1287.

Gold is in a 13 Fibonacci year bull market.  This is much like the Tech Stock bull from 1986-1999 in fact, and this would be similar to 1997 in the Tech Bull, still a lot of room on the upside to come for both Gold and Gold Stocks yet.  The Fibonacci 8 year period ended around $905 last August, which is when I forecasted a huge 5 year bull run in gold and gold stocks to commence.  Don’t fall off the wagon on the shakeouts.

 

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