Monday, March 14, 2011

03.14.2011

Not much of a day for price action






SILVER ACTION


Within' the Hourly line chart we can see a nice hold above the five day moving average which is a great indicator. This area was not used as resistance today and more than anything the market stays range bound between $35.50 and $36.50 as it recaptured last weeks range. Markets can correct either through price or through time. Correcting through time means that it says in a sideways movement. If you look at any chart that has done this you will notice moving averages will reflect themselves into a correction as they meet up with the range. You will notice that the bollinger bands will reset correctly also. I am not as big of a fan on bollinger bands and MACD, but but many other people are and they seem to work very good. The candle chart for the same time frame (hourly) shows a symmetrical triangle. These usually result after a big up or down move and this case it was from the up move last Friday. These tend to result within' the current pattern more often and in this case that would be higher. Not sure what percentage of the time it would go higher, but it would be over 50% and probably under 60%. This doesn't mean too much for the long term traders, but will be heavily looked by many short term individuals.

The daily chart for silver shows a break of the trend of the last few days on the downward slope with today being a consolidation period. Being that Silver is only around two percent from their 31 year highs there is no reason to even think of being bearish until it can retrace more than 38.2% exponential. I should have known the formula a long time ago, but I don't and found it this weekend. The formula for fibonacci on an exponential level is the following:

low*((high/low)^618)
Low=$26.30, High = $36.75 --- 26.3 * ((36.75/26.3)^618) is $32.34 and thus any retracements we have moving to this area I would expect to be guilty until proven innocent and thus having a bounce from the level

Gold and the Ratio
As well as the current economic depression




The daily chart for gold shows its consolidating it's gains nicely but more over in a range from $1410 to $1435 with a few pierces (small hits) above and below this level. Not performing as well as silver but holding up. It seems more clear to the day that we are currently living in a depression and if its silver as your main value of wealth it looks to be a deflationary depression. This means the times suck and the economy is getting destroyed with prices of goods being cheaper. Assume you bought silver before the $20 breakout or even anywhere below $30 and you observe the gas prices (or any other product/service) from the time you bought your silver to now. The amount of money you put into todays goods would make things much cheaper to buy. In Dollars this would be an inflationary depression because products and services are going higher. Gas prices are up and for the most part you can only hope the price hasn't changed in the last few months and that rising prices will not come any time soon. Even if they do go lower in prices as would be the case for technology for many years, this means even cheaper prices in silver as silver gains on fiat currency. Within' gold I think its going to be a depression because prices should stay a float with gold. This means if gas prices go up 40% then gold should go up around 40%. Time will only tell on this matter and over the last few months prices have been cheaper in silver and higher in dollars.



The trend is lower for the gold to silver ratio which was 39.88 at 5pm Eastern today (the time of the close on my page) and the silver to gold ratio using milligrams for gold was 784.4 at the same time and this trend is higher. Generally speaking silver seems to have bigger days on percentage numbers than gold. This means on a gold 1% move that silver should have around 3% most days either up or down. Therefore if the gold to silver ratio were to ever go back higher the likely scenario is that it will be because both gold and silver go lower. If Silver goes from $36 to $25 or loses one third than maybe gold may lose one sixth and go back to the $1200 area. Its unlikely that silver will rise and the ratio will go lower as that has been the trend for movements. If you play this ratio to go higher then essentially what you do is you short silver and buy gold with each position being around the same in nominal terms. If you play this with bullion then you would trade silver for gold with the plan on selling this back for silver. If sell 40 oz of silver today for one ounce of gold and the ratio moves to 50 then you could make the sale at this time and gain 10 ounces of silver on the trade. Of course that would be the result if you win. Stellaconcepts has recently pulled this trade off, which is one I do not like as the trend shows major strength for the ratio to keep going lower. The trend is your friend and by doing this play you are thus trying to call a bottom and fight the current path of least resistance in the hopes that it moves to your direction. With long term fundamentals stating a historical ratio of sixteen to one and when you look at the inventory and production of these two metals it should be a ten to one ratio. Finally the physical usages of silver states that silver has more value and thus there is much reason why this chart can come down lower. Webbot has reported that they expect this to hit parity for a very brief period of time and the webbot projections have been very accurate. The time frames are off with them, but what they say happens usually does. Therefore long term I would be expecting at least a test of the ten level and maybe even this year. It would take a major dollar collapse type of event to happen for this to be the case, which would be expected based on where we are today.

As far as a short term dip is concerned, I would want to see it go lower before guessing where a bottom is going to be. This level reach today was tested last Friday and the daily chart has much reason for another leg lower on the ratio and another leg higher on the silver priced in gold chart. I would start guessing (if I had to guess) when its around 810mg or 39 to 1 as it reaches a key fibonacci level. Even then I would not make this play as the risk versus reward does not look appealing. His upside targets were to either 50 or the 60 handle and from looking at the charts if we move higher I would look more towards 47 where we encountered some previous support as a key level to expect resistance as well as doing fibonacci calculations. But long term I am very bearish on the gold to silver ratio chart and thus bullish on the silver priced in Gold/MG chart.

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