Despite the pandemic of negativity recently with regard to economic growth, we should listen to the market rather than the messages of the media. The equity markets are telling us that despite all of this gloom, one can note positive technical developments. Let’s look at the tape and resist the bourses function in confusing and misdirecting the investor.
Noted with interest is the persistence of the Dow Jones Industrial Average to remain above the 200 day moving average. Similarly, the 50 day moving average is in a persistent upward converging. Of all things, the charts indicate the possibility of a constructive technical breakout into new three year highs Could it be the Dow is setting up for a record move as hyper-inflation looms on the horizon? It is trying to find support at its 200 day moving average and rising 50 day. The Dow is currently in the upper part of its three year range despite all the doom and gloom.
A time tested rule of the marketplace is to listen to the market itself and not the rhetoric of the media. Technical developments have been positive on the general equities since our early October buy signal despite all the pessimism. Commodities and mining equities are currently lagging as there moves usually lag the move in the general equity market.
Gold and silver have found support at their long term trends and are breaking multi month downtrends to the upside. We have been through this all before where gold and silver equities and bullion itself experience volatile sell-offs only to reestablish the classical upward support trend outperforming equities and bonds.
Silver (SLV) is holding key 2011 lows at $26. Intra week it went below but then closed the week higher indicating strong support and a shakeout of weak hands. Silver is very oversold. Supply is tight. There are several mines in South America that are facing rising resource nationalism in Argentina, Peru, Mexico and Bolivia. Look for silver to break above the 200 day moving average at $30.24. We are looking for support to hold and for a bullish reversal above these key price levels.
Gold (GLD) is making a bullish reversal despite reports that QE3 is not enthusiastically supported by the Fed. Support is holding at the $1550 area and we are looking for a break above the 50 and 200 day to confirm that this may be in fact the bottom.
The dollar (UUP) and treasuries (TLT) are hitting key long term downtrend resistance and is short term overbought. Downward reversals are highly probable at this time.
The markets do everything they can to throw us off course regarding precious metals. It reminds us of the street hustlers on 42nd St, who are experts at tromp l’oeil or “tricking the eye” as they play the old game of finding under which shell the pea is hidden. As a veteran of the precious metal wars, one day does not abort a multi-year trend just because it is lagging for a few months.
Indeed, these intermittent reversals have signaled excellent buying opportunities along the precious metals long term upward path. The path of the precious metals will be reestablished despite venerable experts who proclaim the continued decline in wealth in the earth equities.
There will come a point when bullion will reassert itself and bring the small miners onto center stage. After all precious metals have to come from somewhere and yield rich rewards to the patient investor who will become increasingly aware of the source of bullion emanating from the small mining mother-lodes.
Remember, the summer doldrum markets are even more difficult to understand than other periods of the year due to the low volume, whic often results in erratic and precipitous prices which bare scant relationship to rhyme or reason. Thus we may see an abrupt gap up rally in mining equities based to keep pace with the general equity markets.
Should our subscribers witness irrational prices characteristic of the summer doldrums, it should be regarded as purchasing plums. The red that has been seen on the screens may be the color of the sumer season. The current coloration in the past has been subject to volatile change, which we will keep closely following in our free newsletter.