Silver $22.77 target? I hope not!
I saw gold and silver both slowing down in their rally yesterday (Tuesday).
Gold was approaching very near its 50% retracement of the downmove, at $1520.19 on my chart and silver near a 38.2% Fibonacci retracement of its down move, at $39.44. Both looking a bit toppy. Interestingly, these Fib levels were also support and resistance where short-lived trading ranges occured in gold and silver on 5th May 2011 in the morning. I fancied going short on a spreadbet but didn’t want to gamble really.
Gold went just beyond the 50% Fib target to 1528 and silver turned almost exactly on its 38.2% Fib target at $39.52 intraday, within 8 cents. Now it's Wednesday and both have turned down from these points.
I asked Al and Roger Wiegand if they thought silver is going below the $33 low to form a big A-B-C correction? A 38.2% upside retracement of the $49.75 to $33 crash is very stingy, nowhere near enough to form a nice bullish flag. An equal sized downleg of $16.75 would take the price from this interim high of $39.52 to $22.77 if that occurred!
This comment was posted by me earlier today at:
http://www.kereport.com/2011/05/10/big-al-trader-rog-answer-question-listener-brad/
Here are my CMC markets trading screens. Both prices are nearly at Fibonacci levels that are also prices that were trading sideways going into 5th May during the crashes:
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The retracements for this selloff in silver have been analysed by Roger Wiegand and Ben Davies with respect to the move from the last low of $26.35 to the high of $49.75 to give an idea of the story so far.
I wondered if the correction might be in respect to the entire bull market wave from the low of $8.40 in the 2008 credit crisis to the high of $49.75. Ross Clark on Howestreet has just mentioned this for possible analysis in his interview this week.
Those Fibonacci targets would be:
38.2%: $33.95 / 50%: $29.07 / 61.8%: $24.20.
These were calculated from:
49.75-8.40=41.35 move from 2008 low
41.35*38.2/100=15.80 retracement
41.35*50/100=20.68 retracement
41.35*61.8/100=25.55 retracement
Targets are:
38.2%: 49.75-15.80=$33.95 - just about reached today 05/05/2011.
My trading screen showed $34.15 at 9:15 pm in the UK.
50.0%: 49.75-20.68=$29.07
61.8%: 49.75-25.55=$24.20
See chart:
So we have just about had a 38.2% retracement of the entire move from $8.40 to $49.75. That's pretty significant, especially with nearly all of it coming in only 4 days!
I watched the opening of Asian gold and silver trading. Gold gapped up about $10 on the start at 11:30 pm British Summer Time (BST) on Sunday night 1 May 2011. Silver ralled about 30 cents, then ...
I was reading some articles and listening to a podcast. When next I looked at my trading screen I saw a huge drop on the silver chart. I coudn't believe the scale running down the side. From about 48 to 42?!
Gold was down about 20 dollars and SILVER DOWN 6 DOLLARS IN 15 MINUTES!
This occurred from about 23:20 to 23:35 BST. It was basically a vertical drop in silver. Gold rallied a bit and then did another wave down to finish $33 down in the next half an hour while silver 'stabilised' between $42 and $44.
The price changes were (top to bottom from my chart):
Gold: $1577.51-$1543.67=$33.84 down
Silver: $48.177-$42.152=$6.025 down!
THAT'S ABSOLUTELY OUTRAGEOUS!
Looking at it later, I have labelled the times on the upper left. The vast majority of the smash occurred in 11 minutes between 23:26 and 23:37 British Summer Time on Sunday evening. There is not a single green 30 second candle for the lower $4 of the fall!
Of course, liquidity is probably thin; it's the middle of the night in london and NYC after all. If you look at the latest COT report on http://www.traderdan.net/, Dan Norcini shows that there are a lot of small speculators long at the moment - I guess they will have been wiped out pretty much by this move if leveraged.
If I switch to any other time frame on my live charts, even daily (covering the last 10 months) or weekly charts (going back to 2007), this 15 minute move shows up. The drop looks huge on the daily chart.
Is this why there are no limits up and down for silver now?
% moves:
Silver: -6.025/48.177*100= -12.51% in 15 minutes
Gold: -33.84/1577.51*100= -2.15% in about 40 minutes
Gold:silver ratio at start of move:
1577.51/48.177=32.74
Gold:silver ratio at end of move:
1543.67/42.142=36.63(That will make Bob Hoye happy!)
$ move ratio Au/Ag:
33.84/6.025=5.62 as against actual price ratio of ~35:1
% move ratio, i.e. silver's leverage to gold
6.025/48.177*1577.51/33.84=5.83
Silver moved down nearly 6x as fast as gold.
That's consistent with last Monday's fall of $5 in 24 hours and the last part of the rally just before that fall.
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On Jay Taylor's show last week segment 5 for
http://www.miningstocks.com/radio/jayradio.php ,
Roger Wiegand said that we should be very careful at the $48-51 level for silver because there would likely be a correection on profit taking or an expectation of a top at the old top from 1980 at the $50 level. He said the correction could be $5 or even larger, up to $15. He was correct! As silver spiked up to $49.78 (price quoted by James Turk on Al Korelin's show 25/4/2011 here) this marked a top and there was an almost immediate $3 drop on and A-B-C correction - but there was more follow through and silver was down $5 in a 24 hour period, as shown so clearly on the Kitco multi-coloured 3-day chart (updated version at this link):
Wow! Red day = down day in this case! This drop is more than the entire silver price was 10 years ago. There was a parallel $22+ drop in gold too by the way.
My CMC Markets charts show a drop in gold from $1518.58 to $1492.85, a move of -$25.73 and silver moving from $49.826 to $44.636, a -$5.19 move. The ratio of these in $ terms is 4.96:1 ie 5:1 gold: silver $ move.
To work out the % move ratio (silver had been outperforming gold 6:1 on the upside, we can calculate this easily. It is % silver move / % gold move = 5.19/49.826*1518.58/25.73=6.15. Silver had 6.15x the downside move of gold, as against what I calculated on the upside move last week 6.25:1 in % terms. Silver is leveraged 6:1 vs gold on the upside and downside right now!
Thought for the Day:
I thoroughly recommend the interview with Nicole Foss, one of the most sensible interviewees on financial radio on Jim Puplava's Financial Sense Newshour this Easter weekend. It can be found at:
http://www.financialsense.com/financial-sense-newshour/big-picture/2011/04/23/02/nicole-foss/preparing-for-the-next-tsunami
Title: "Nicole Foss- Preparing for the next Tsunami
The peaking of oil prices and the coming Depression. Resource Wars to follow."
One of her many statements: "I doubt very much that the Chinese Century will look like the American century did. There simply won't be the energy to support it."
I listened to Bill Haynes and Dan Norcini on King World News weekly metals wrap this weekend 23 April 2010.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/4/23_KWN_Weekly_Metals_Wrap.html
Bill Haynes said the market is getting a little frothy looking at the trading at his shop. Also, for every $ invested into gold, $2.50 going into silver at CMI Gold and Silver. He said silver may pop to $50 and then a correction possible.
Dan Norcini mentioned Asian market silver $46.80 gold $1513 Fri morning:
Bill Haynes said that gold was up nicely but angle on silver is very steep – many waiting for correction not one yet – may drop hard.
Eric King mentioned gold +$18 silver +$3.48 for the week. So the ratio of the move was 5.172:1 on gold:silver in $. That’s 1.2% in gold and 7.4% in silver. That has silver moving 6.25 times as fast as gold over that week!
Compare that to 2 weeks previously: 9th April 2011, gold +$45 silver +$2.87, $ ratio 15.67:1 in $ terms (cf Isaac Newton historic gold:silver ratio) prices were $1475 Au and $42.26 Ag, so silver moved about 2.3x as fast as gold in % terms.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/4/9_KWN_Weekly_Metals_Wrap.html
So it’s gone to an extreme this week ending 23 April.
Maybe we are in for a sharp correction… Well we got one, silver down $3 on Easter Monday, gold down about $15; gold down only $5 for each $1 in silver ,so the leverage worked the other way! Silver down 3/49.5=6% and gold down 15/1500 = 1%. So silver moved 6x as fast as gold on the downside too!
No wonder many of the gold stocks have been lagging a bit. Maybe people might have been buying silver instead, to get their 2x to 6x leverage to gold!
I have also mentioned in previous posts the Silver Leverage Indicator (SLI) by Roland Watson, which would probably be analogous to the RSI on the silver:gold ratio as used by technical analyst Ross Clark, as silver rises much faster than gold, both the SLI and Ross’ RSI would go into high territory. A high SLI according to Ronald Watson happens near a top, like 1980, 1998 and 2004 for instance, although he uses a kind otrailing or rolling 4 year average for this indicator. That would therefore require Ag:Au % leverage of 2:1 to be sustained for a couple of years before a top was in, I guess.
http://1000gold.blogspot.com/2011/04/comment-on-ross-clarks-analysis-43.html
and
http://1000gold.blogspot.com/2011/04/in-reply-to-howe-street-broadcast-by.html
Thought for the Day:I wonder if the precious metals stocks lagging the physical metals is a kind of backwardation – i.e. people have been buying the metals for delivery now, rather than buying metals in the ground that cannot be delivered yet.
Silver has started its parabolic move at the price point of $40 a few days ago (see chart). Up to that point the price was still below the original trendline extended from the 10 cents/day rissing trend channel in August/September 2010 that also contained the intermediate top on 2 January 2011. There has been a clear break above this now.
For how long will this continue? It has been in place only for about 7 trading days.
If there is a blow-off move, will that be THE top in silver or just an interim top? And where will the top be? Unless the move breaks quickly, $50 might be reached next week, then what? Such a move could go to 60, 70 or even $100 if this is like the 1979-1980 move.
However, the weekly chart looks scary. We are now 8 months into the breakout above $20 starting at the end of August 2010.
The weekly chart looks a bit alarming and maybe the parabolic move started a bit earlier, maybe 5 or even 13 weeks ago when the 18.9 cents/day trend started after the correction to $26.38.
In the last few days, silver seem to be in a dollar a day trend. Get up, silver goes up 1 dollar, go to bed again. There has to be another correction in there somewhere surely, after 7 consecutive daily white up candles and 5 consecutive weekly up candles!
Be assured, as soon as I put on my next little spreadbet to go long on silver, the correction will start 1 second later!
After watching Jim Sinclair's gold market analysis DVD, I would probably put power uptrends on a silver chart, something like this:
When will it end?
I just commented on Ross Clark's latest interview about gold and silver on Howe Street:
http://talkdigitalnetwork.com/2011/04/debt-threats-work/#comment-338
Interesting as always from Ross. However, is there not something of a contradiction between the upside target of $1550-1600 for gold and the $40-43 target for silver that has already been exceeded. Silver is still moving more than twice as fast as gold in % terms. The Kitco chart currently shows $2.70 up in silver and $28 up in gold in the last 3 days, low to high. That's about 10:1 or 11:1 gold:silver in $ terms while the price ratio is still 33:1 ($1505/$45). Silver moving 3x as fast as gold in % terms then!
Though on the S and P's USA debt outlook downgrade, gold and silver spiked up, silver up 60 cents in 7 minutes (as part of 90 cents up in an hour) and gold up $15 in those few minutes too. Silver then took a tumble below the starting point but gold retained a bit of the upmove on the tumble. Ben Davies of Hinde Capital on KWN has spoken of $400 upmove for gold with silver topping near these levels.
However, silver caught up in the last 2 days and is flying AGAIN today on Wednesday!
Interestingly, on Eric King's program weekly metals wrap 2 weekends ago, Eric described a $2.87 weekly move in silver versus a $45 weekly move in gold. Interestingly, the ratio of the gold to silver move is 15.68:1 in $ terms, about the same as the classic Isaac Newton gold:silver ratio under the bimetallic standard and silver's % move being more than twice that of gold, as has been the case for a while.
I also took a look at Silver Leverage Indicator (SLI) articles of Roland Watson, which would probably be analogous to the RSI on the silver:gold ratio, as silver rises much faster than gold, both the SLI and Ross' RSI would go into high territory. A high SLI according to Ronald Watson happens near a top, like 1980, 1998 and 2004 for instance.
However, if a 15:1 ratio of movement continues, you would get the following price combinations of gold and silver on the upside:
$1480/$40 (recently - starting point), $1630/$50, $1780/$60, $1930/$70 and $2080/$80.
So a $1630 target for gold would go with $50 silver unless silver slows down as gold goes up.
We have to consider: What could make that happen? A new Euro debt crisis as Greece's bonds are yielding 13% now? Another debt outlook downgrade of the USA? A stock market downturn? What? Surely the economy needs to take a hit with perhaps the general markets with a flight to gold contuing and silver stalling.
With the same leverage on the downside, a $300 correction in gold to $1180 would take silver back to $25.
However, silver just keeps outperforming gold. Don't you think it will continue to do this until there is a something of a blow off top in both in the next few weeks/months?
