“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


To continue following Trader Dan, please sign up for Trader Dan's World at the link on the sidebar to receive a 1 month, no obligation, trial membership



Monday, April 8, 2013

Silver Showing some potential Bullish Divergence

Bullish and Bearish Divergences in Technical Indicators are becoming increasingly more common nowadays because of the nature of the Fed induced volatility which brings wild swings in price and then periods of uncertainty or confusion as traders attempt to sort out what the latest round of either verbal or outright intervention into the marketplace brings with it.

I have written at length about the woes of silver due to hedge funds playing it along with copper, from the short side of the market. Last week's break of significant technical support down at the $28 level brought in even more hedge fund shorts.

However, silver is showing some signs of bullish or positive divergence which merit watching. For those who are newer at this, bullish divergences occur whenever a technical indicator fails to produce a new low while the underlying commodity is in the process of making new lows. In other words, the commodity and the indicator are diverging.

In the case of bullish divergence, the technical indicator has been moving lower but note that the lows it is making are successively higher than the previous lows in the indicator even as the metal has been moving lower and making successively lower lows in the process.

Keep in mind that bullish divergences are often times mere continuation patterns so never buy a market based solely on a divergence. What will make things interesting however is if silver prices can climb back above broken support now turned resistance at that $28 level and HOLD ABOVE it.

Downside momentum is slowing even as traders have been selling rallies in silver so any sign of an overhead resistance level giving way is going to induce some of the shorter term oriented shorts to book some good profits.

Let's keep an eye on this.

One thing to also watch, last week's low near $26.50 is now a critical support level. If it fails to hold, a test of round number support near $26 will happen almost immediately. That MUST hold to prevent a drop to $24.



I must admit that it is difficult seeing these precious metals continuing to move lower with the massive Bank of Japan stimulus package and the rotten jobs number of last week serving to reinforce the idea of QE3 and QE4 continuing to last throughout the remainder of this year, but there are real concerns about the efficacy of these stimulus measures. After all, when we consider the fact that by the time QE3 and QE4 reach the month of December of this year, a total of $3.5 TRILLION will have been conjured into existence as the sum all four Quantitative Easing programs. In spite of where we currently are in this money creation binge, job hiring seems to have stalled out.

Let's face it, consumers without jobs cannot engage in spending sufficiently large enough to provide any serious or solid economic growth. Oh, yes, they can use government benefits to purchase goods and services but not at a size sufficient to jolt this economy higher. More importantly, the VELOCITY of MONEY needed to spur inflation is simply not there.

One has to wonder what exactly will be the trigger or catalyst that is needed to shake off the deflationary psyche among the hedge funds towards commodities in general and get them to begin anticipating inflation. It is more than evident that the stock market rally is nothing else but a spectacular display of PAPER ASSET INFLATION brought about by the Fed's unlimited paper dollar creation schemes. As stated repeatedly now at this site, that money is almost exclusively ending up in US equities in the desperate chase for yield in a ZERO INTEREST RATE environment. It has bypassed commodities for the most part even after QE3 and QE4 were both announced and them implemented.

As we watch the mining shares sinking further into the red nearly day after day after day, one begins to wonder at what point the shorts are going to say, "ENOUGH" and finally ring the cash register. There is an old saying in trading, "Bulls make money; Bears make money; but Pigs get slaughtered".

By the way, copper is getting some buying coming into it on the heels of a strike in Chile. That is serving to prop up the red metal in spite of growing warehouse stocks. We are seeing some of that buying of the red metal spilling over into silver, at least in Asia this evening.

I am continuing to monitor the yield on the Ten Year note to see if traders are showing any signs of anticipating an outbreak of inflation. So far nothing doing.


There is a very gradual uptrend on the yield showing up on the chart that has been underway since summer of last year, but I personally will not be impressed that longer term yields are going solidly higher unless I see this chart consistently remaining above 2.0 percent and that is just a bare minimum to be quite honest that would get my serious attention.


4 comments:

  1. If you take Keynesian (statist management) economics further you get into the Mugabe school of economics.
    Been there done it - had to sell the T shirt.

    ReplyDelete
  2. Dear Dan,
    Your post couldn't have had better timing.
    I use macd 9 20 7 and what they call 123 MACD used when MACD reaches and bounces on its propagation axis.

    http://s24.postimg.org/bk174tuad/slv.jpg

    So we do have a 123 MACD here, which "usually" is a strong buy signal IF it is being confirmed on the smaller time unit, i.e 4 hours candles here for exemple.
    I would have preferred to go long Under 27 $ when 4 hours candles MACD had just crossed from the lows. Now it's gone quite higher already, prices as well and risk/reward ratio is not as interesting.
    Besides Gold is still capped by its résistances...I'd like to see it close above 1590, even if lasts posts showed that silver is not as much correlated with gold as it used to be, but rather to CCI and Copper, which I think is quite an useful piece of information!


    http://s10.postimg.org/6glie0bk9/gld.jpg

    Have a nice day,

    ReplyDelete
  3. alcoa beats! Over the past 10 years prior to Monday’s results, Alcoa’s quarterly figures have exceeded analysts’ expectations 50% of the time (20 out of 40 quarters). When Alcoa beats, the S&P 500 has averaged a 4.4% gain over the ensuing three months and has been positive 80% of the time.

    didya notice the outflow in SLV ---> -180.3 ton change from yesterday... it still looks like we need everybody bearish to make a good bottom after gold rose for 12 straight years!

    soybeans and silver like to run together... there is a usda report weds. and the beans/corn are oversold nicely since the last usda report.. basis or 'cash' soybeans are selling about 70c above the may futures price and price of may contract normally goes to the cash price as the contracts nears it's end 'goes off the board'

    cheers!

    ReplyDelete
  4. turned out the news was a bullish goldman sachs call on copper at 10am et.

    silver and copper come out of the same ground, gold dragged higher but definitely not the leader.

    dollar moved down later after eur/usd rebound from 1.3030

    corn and soybeans short covering bounce ahead of usda or a bottom, we'll see!

    cheers!

    ReplyDelete

Note: Only a member of this blog may post a comment.