Silver May Be About to Break Out
Silver About To Break Out Big!Silver is one asset class I do not cover very often, but have been largely bullish on since $6 an ounce many years ago. It can be considered "poor man's Gold" as they say. I believe Silver is about to stage a pretty large advance based loosely on the Elliott Wave pattern I see unfolding after a 9 odd month consolidation. (Obviously, there are also fundamental fiat currency/debt events worldwide that give it the underlying bull chart pattern). Since the average person can't run out and buy an ounce of Gold for $1,240 tomorrow, as the unfolding of the fiat crises continues to enter the public psyche, you will see a strong populace movement into buying silver, silver coins, etc. To wit, many silver stocks are moving up strongly of late, signally an imminent breakout of this precious and industrial metal.
The triangle pattern has taken nearly 9 months so far, and a move over $19.50 could start a multi-month run targeting $26-$29 per ounce for starters before a broad pullback. I post the Silver chart below and my outline shows my views of a multi month 5-wave bullish triangle pattern on a weekly chart. Silver needs to bust through $19.50 per ounce to confirm, but I suspect we will see this fairly soon.
Silver Daily Chart
A few silver stocks worth looking at include
Elliott Wave Rally for Gold?
Gold Bullion Likely To Pull Back Then Rocket HigherBack in June we saw a drop in Gold coming, mostly due to the 5 wave structures up from the October 2008 lows to June highs, and the 5 waves up from February lows to June highs converging. We then dropped from $1243 at the time of the forecast to $1155, which was one of my potential "A wave down" rally pivots. I expected a counter-trend rally or "B" wave up to 1212-1225. So, all of that worked out pretty well, until we hit $1238. Now, $1238 is a 78% Fibonacci re-tracement of the drop from $1265 to $1155. Normally, a re-tracement in a weaker market or sector is capped at 61.8% or 50%.
The strength of that counter-trend move caused me to go back and review my patterns a few more times. Most of this is pure instinct and experience, but I think $1155 was the low of the correction. It also looks like that was an A B C correction to $1155, and with the strong rally... it means we are likely beginning a new set of 5 waves up from $1155.
We closed our Gold trading short position out several days ago with a small profit. It is a good thing we did because Gold rallied hard from 1212 to 1243 since that time, catching some people off guard. At this time, Gold is quite overbought and due for a small corrective pattern. It would seem logical that after a rally from $1155 to $1243 roughly, that we would pull back 38-50% of that move, so I'm looking for a pullback to around $1200 plus, and then a rally. We could see new highs in Gold in the next few months, and $1300 is on the radar now.
Below is an updated Elliott Wave based chart showing clear corrective (3 wave) patterns from December 2009, and bullish (5 wave) pattern from February through the June 2010 highs. We just completed a 3-wave correction to $1155, and now this is probably a short-term peak wave 1 up, with a mini-wave 2 down to $1200 or so to follow. Once done with a pullback, we could see a run to $1280 or so, and later over $1,300.
In summary,
Time to Harvest Profits in Agribusiness?
Agricultural stocks and commodities have significantly outperformed the market over the past two months and it finally made front page news last week after the HUGE takeover bid for Potash (POT) from BHP Billiton (BHP). Officially BHP is still chasing its kill and one must ask if this will end up like the failed Rio Tinto takeover circa 2007 that led to investors’ loss of interest. At any rate, this activity has fueled a monster move in the AgriBusiness (MOO) sector with a 16.8% outperformance of the market since July 1. The merger activity was sparked by the consensus estimate that agricultural commodities and the sheer price of food will increase at rates higher than expected.
Agriculture commodities are moving higher – the PowerShares Ag Fund is up almost 10% since July, doubling the market’s performance over the same period. Of course, all things come to an end eventually, but I believe it’s too early to harvest profits. Every day I use three unique systems to analyze exchange traded funds on three different time frames (I call it the 3X3 strategy) so let’s walk through the current analysis on MOO using some of my TRADR strategies – you’ll find that MOO can still provide good nourishment for your portfolio.
Unlike many traders I’m not afraid to jump on a strong technically ‘overbought’ trend, I’ve found that the strongest trends continue to persist.
Don’t Harvest Profits Yet, Here’s Why
Market Conditions - It’s hard to look at any niche sector of the economy without also looking at the entire market - for example, AgriBusiness is positively correlated to the market so knowing the market trend is imperative. Don’t worry though it’s not that difficult to objectively time the market, TRADRs use our TrendScore to determine the direction. Outside of systematic signals traders look at seasonal patterns, like the election cycle or summer slump.
It’s hard to believe, but we’re just two months away from the mid-term election of a first term president, which have historically very bullish. According to Jefferey Hirsch (Stock Traders’ Almanac) the US stock market (SPY) has not seen a loss in the third year of an election cycle since 1939, period. What’s the bottom line for you and me? The fourth quarter is likely to be a great time to buy with respect to the following year.
This is where it gets hard. The current market is essentially trendless and now leaning to the bear side after last week so it’s hard to catch a falling knife. So what do you do? Whenever the market is weak smart traders and investors look for the leaders that lead the reversals. In this market that leader is clear, AgriBusiness (MOO), which has emerged as the leader in the previous week and it’s likely to lead the coming seasonal rally. Overall, don’t get to anxious to take profits on your agricultural based stocks or ETFs, they are likely to be persistent leaders.
Ag Commodity vs. Ag Stock - OK, let’s step back from the seasonal patterns and take a look at real time data with a real a trading system. There are a lot of relationships worth following in the market; NASDAQ vs S&P500, Gold Miners vs Gold, Dollar vs or AgriBusiness vs Ag-commodities (which we will focus on today). These relationships provide an insightful look into future price action, specifically when you look at relative strength. The chart below says it all.
Relative strength of any relationship can be determined by a simple process, here are the steps to creating an effective timing guide using relationships in the market.
- NASDAQ Value / S&P500 Value = X (normalized number of true relative strength of NASDAQ versus SP500)
- Plot longer-term moving average and shorter-term moving average of X Value (smoothed MAs expose the true trend of relative strength)
- Track Cross & Confirmations of Moving Averages for buy and sell indicators
You can do this with a lot of different pairs out there - for today we are looking at the relative strength of AgriBusiness (MOO) vs. Agri-commodites (DBA). To get a real perspective of where MOO is going we are looking at the 20 day EMA and 60 day EMA (1 and 3 month moving averages) of the relative strength. You can see the buy and sell arrows based on the moving average crosses of the relative strength.
As you can see we are entering into
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