Wednesday, June 13, 2007

All that shines is not gold....... maybe its silver !

Well time is running out. The pattern above is going to resolve itself one way or the other. I know that we must wait for the market to tell us what it wants to do (by its action) rather than trying to anticipate. The problem here is that the resolution could be an enormous gap. The fundamentals for silver are very compelling. Demand far outstripping supply, the enormous short position on the Comex, rumored to be held by 4 major players(broker-dealers). Ted Butler does more homework on this than anyone I know so read his stuff. James Turk offers some valuable insight as well, along with the fact that silver has many more commercial applications(compared to gold). For those unaware they are now using silver in athletic wear as an inhibitor to body odor, no joke they really are !!

The daily silver chart (above left) shows silver in its latest consolidation pattern. The 50day is still north of the 200day and both are flat lining here, they need to rectify this for the bull case. There is the risk that silver breaks the 200day and falls out of bed here, then we are looking at $10/oz pretty quickly. Momentum doesn't seem to be breaking down here so this is a positive. The weekly chart (above right) shows it holding the 40 week MA. What concerns me here is the bearish engulfing candle back in March, which if you punch up the silver ETF (ticker SLV) that bar shows some volume. I would feel much better if and when that gets taken out to the upside, until then we watch and wait.

Crude- $67.50 is still the number. If you are playing USO then the upside number is 53.50(inverted h&s). Staying with USO we absolutely need to see 47-47.50 area hold or the Jan low around $40 is in play. The floor traders could do a real whip job down there is we have to cross that bridge and that's why keeping initial positions small and pyramiding up is they key to 1) preservation and 2) success. Good luck and good trading to you.

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