-- Posted 18 December, 2006 | | Source: SilverSeek.com
The Big KA-POW!
For sure. Big pain amongst the leveraged (futures/options) traders. Margin calls galore today.
As nearly all of you know when the precious metals do their dosey-dos, silver does the steeper swan dive off the high board. As a consequence of silver being more volatile than gold, you can now get more silver for your gold. But, who wants to do that if they're both declining in dollar terms? We spend dollars, but unlike the 19th century speculators we can't do the switch and then take our additional ounce booty to market and buy things. If you're retired like me, my spending dollars have to come out of my IRA, and with the inflation demon raging I need more of them with each withdrawal.
But, what we do know is that when the Gold/Silver Ratio does turns around, and silver starts getting more "expensive" in gold, BOTH metals appreciate in dollar terms.
I use the SLV:GLD Ratio chart only for technical significance - I do not own either of these irredeemable ETFs. So, let's get into it.
What jumps right out at us from the chart is the the Ratio is moving up with higher highs and lower lows which is very bullish long term. This has been continuing since the summer of 2003.
Don't cringe as I did when I first encountered Fibonacci. You can find thorough explanations on using Fibonacci anywhere on the net, but here's a
quick one. All we need to know is that "things" such as stocks, indexes, ratios, and even planetary orbits ebb and flow in practically predictable fashion. They advance and retrace in the same percentage constants, i.e., 38%, 50%, 62%, 80%, and 100%. If you gave the Fib link above a quick glance, you can follow this.
We'll start with the July ratio pullback to 1.665. From there the ratio climbed (silver became more dearer than gold) to 2.104 in Sept. That was an advance of .435. Now then, in the ensuing correction the ratio pulled back 10 1.822, a decline of .282 from its previous high of 2.104. The .282 is 64.8% of .435 the ratio's previous numerical advance. Obviously, the pullback exceeded the 38% and 50% benchmarks and went close to the 62% threshold. Whenever a Fib number is taken out it's a near certainty it will go the next benchmark. Okay. Now we'll take that .435 number and add it back onto the 1.822 (the cyclical low), and we get 2.257!! Now how low can the Ratio before we buy back in? Well, as you can see the Ratio right now is @2.04, but let's use the low for today of 2.01. That is a 55.4% retracement from its high which had an expansion of 43.5 (.241/.435 = 55.4%). We know that once a Fib resistance/support line is breached we can expect it to go the next Fib line which would be 62%. So, 62% of .435 gives us a retracement to 1.98. If it goes beyond 62% it'll go to 80% which would be a Ratio of 1.90. I am looking at those two 'swing lows' at 1.97-1.98 for a reversal. But, hey, Fibonacci should not be used independent of other trading indicators. For this reason I have included three above the price chart. You want the MACD bars to reverse in length & start getting shorter as they head back up to the "0.00" threshold; the Wm%R to 'peek' back over the "-.80" line, and the SlowSTO to crossover. When these all line up, our Fib target should have been achieved, and we can set sail again with our newly purchased silver booty safely stored in our hold, sell stops applied, and continue our journey waiting for the next safe harbor opportunity.
Did you follow this, or even attempt to? I'm no Bill Nye-The Science Guy by any means; I just barely scraped by in college statistics. To this day I don't know why I took that nasty course. My Math SAT was a full hundred points below my Verbal which was uncharacteristic for a male profile although I exclaim "I am not effeminate!"
I welcome any critiques or corrections to my methods. I'm not that comfortable yet with Fib, and would be appreciative of any constructive criticisms from you experts out there.
But wait - aye mate, don't ya move a gol'darn inch! This exercise only tells us about the physical metals. We've got to know if the time is safe again for us to buy back in to the pm stocks. As y'all know they may lead or lag. In this case you can whip your newly found Fib number exercise upon the HUI - which I use as a safety umbrella for the general direction of pm stocks. I usually skip the Fib computations out of laziness and just go with my weekly charts using the same indicators you see above this price chart. Do the same weekly charting with your selected stock favorites. Whatever works for you, stick with it. But these can be your starting points. TIP: I try to go back into the pm stocks that have had the greatest appreciation in the last bull run, discarding laggards, and buying the new boys on the block with the most spring in their steps.
Whatever you do, don't buy into stocks that are being recommended by newsletter stock 'wizards'. Most of the ones I've checked before buying are either in full bull mode or peaking at the top. Their friends and themselves are fully invested long before you got the 'word', and now they want to sell to you. Your indicators will tell you where a stock is in relation to its advancement or retracement. You want to be buying when the risk/reward is clearly in your favor, and that's not when you see long white candlesticks for several days!
As for me I get giggly with delight anticipating buying call options on selected silver and gold stocks. Yum yum.
--CV
-- Posted 18 December, 2006 | |
