Stealth Mode Rally in Silver Maybe not so Stealthy Anymore

I remarked last week that silver had been slyly working its way higher in very quiet fashion but was knocking on the door of overhead resistance. Today it broke that resistance and so far is doing it in convincing fashion.

Based purely on technical factors, it should try to make a run at $29 where heavier supply awaits. That stands between it and a handle of "30" which will most certainly catch the attention of the momentum crowd.

Take a look at the shorter term moving averages (not labelled). These are the 10 day and 20 day respectively. Notice that late last week BOTH MOVING AVERAGES crossed above the longer term 50 day moving average. This has not been the case since the middle of March of this year! Also notice that both of those are now trending in an upward direction as they pick up the upward shift in momentum.

You will also see the heavier blue line which is the 100 day moving average. That comes in near 28.83, a bit below horizontal resistance near the 29 level. Expect a battle beginning at that level and extending up to $29. This is one of the reasons I expect to see a fairly large amount of supply hit the market near this point. If the silver bulls can eat through and absorb that selling, it will mark a decided shift in sentiment towards the metal.

Downside support lies first near $28 and is staggered at 50 cents intervals below there down to $27.

I should note that this is occuring against a backdrop of a higher CCI (Continuous Commodity Index) which is beginning to move closer to the top of its recent trading range. Note also that this top of the recent trading range happens to correspond EXACTLY with a criticial Fibonacci Retracement level, namely the 61.8% near 566.

If the CCI can clear 570 with gusto, Silver will see an increase in buying.

Trader Dan on King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap.

http://tinyurl.com/c7e9o6y

 

 

Ancient Rome had Nothing on Modern Day America

Historians have chronicled the decline of the Roman Empire detailing in great extent the internal rot and moral decadence that helped speed its eventual fall. The lack of ethics and virtue was bemoaned even in those days by some of its leading philosophers/statemen.

I find it therefore rather disconcerting to see the the eerie parallels between the symptoms of rot and decay prevalent in Rome before it fell and the current US financial system, which has become a cesspool/stinking outhouse in terms of any vestige of decency and integrity.

Witness the case of one Jon Corzine, which if there was any semblance of justice and virtue left in the current administration's Justice department, would have swiftly be sent to prison where he could play "drop the bar of soap" with his fellow inmates.

With that in mind, take a look at the following article and see if you can constrain your feeling of righteous revulsion.

Guilty As Sin And Free As A Bird – Corzine Edition

He Simply Doesn’t Know Where The Money Is, But He’s Bored And Feels Like Starting A Hedge Fund

Hey, I’ve got good news and bad news this fine and wonderful morning. The good news is that there may well be a new investment opportunity for those of us eager to improve our financial means. The bad news is that it consists of a hedge fund run by none other than Jon “I simply do not know where the money is” Corzine.

http://www.redstate.com/repair_man_jack/2012/08/17/guilty-as-sin-and-free-as-a-bird-%e2%80%93-corzine-edition/

HUI Chart

The Mining Sector shares have shown some strong performance over the past three weeks having solidly rebounced from down near 390 moving up through several overhead resistance levels.

A push through overhead resistance near 440 sets up a run towards a major resistance level centered near 460, which is the point that needs to be bested for a trending move to the upside to develop.

Silver Quietly Sneaking Higher

Silver has managed to rally right to the top of its consolidation pattern without any fanfare and I should add, the participation of a great deal of managed money flows. In other words, without the benefit of the momentum crowd. CAll it a type of stealth rally.

I find this very interesting as it is occuring against the backdrop of rising Treasury yields and a rising equity market. Clearly, for whatever the reason, something seems to be occurring on this inflation front that is moving below the radar screen of many investors. Could silver be sniffing out the first whiff of an inflation play?

Take a look at the following chart and note that the shorter term moving averages, the 10 day and the 20 day, are now trading either ABOVE the longer term 50 day or near par with it. This is a big change that has not been seen on this chart since early March of this year! That is quite astonishing! Keep in mind that hedge funds, while they remain overall net longs, have drastically reduced that position and had actually been adding some fairly large short bets. EVen with that, someone is buying this metal and very quietly pushing it higher.

Let's keep a very close eye on this as it could portend a strong upside move if it can solidly clear the overhead resistance noted on this chart, especially if it does that to end a week of trade.

Are we Witnessing a Shift in Investor Sentiment?

As many of you who listen in to my regular weekly radio interview on the KWN Markets and Metals Wrap are aware, in my mind, the most important financial market is the bond or interest rate market. Everything revolves around interest rates and as such, those levels are the key in understanding where traders/investors are in their thinking at any given moment in time.

Take a look at the following chart denoting the interest rate being paid or the yield on the US Ten Year Note. Within the span of a mere 3 weeks or so, this yield has shot up from down near 1.4% all the way to 1.8%. That is a very rapid shift. It is now sitting at levels that we have not seen since the middle of May of this year.

From a technical analysis perspective, it has reached an inflection point. ON the way down, this 1.8% level, held the market in check back late last year and early this year. Once it was broken to the downside in May, it subsequently tried to rally back above that level but failed. From that point on, it was straight downhill.

Now it has regained this level. Where it closes this week is going to be critical to our understanding of where things are headed in the following weeks. Apparently, investors have moved past the European debt crisis in their thinking (at least for the present). Something has gotten their attention to the point that they are pushing up interest rates.

Now, whether the Fed is particularly happy with this remains unclear but one has to suspect that the last thing the Federal Reserve wants to see is these longer dated rates getting too far out of hand. Also, keep in mind that the higher these yields move, the higher the cost of servicing the gargantuan, humungous, mind-boggling, stupendously large (how's that for superlatives?) US federal debt burden will become.

Given the mediocre condition of the US economic recovery, it is difficult for me to envision yields breaching this overhead resistance level. Still with a great deal of speculative short positions in the US bond and note futures markets, their short covering might be enough to take them higher for a while longer. A lot of those positions were put on as a result of anticipating the "slowing global growth" scenario; in other words, deflationary forces.

If this market however does not reverse course soon, chances are we might have seen a long term low point in interest rates. Stay tuned on this one folks as it will have implications for gold.

Also, I am wondering if the following chart might have something to do with bond and note traders shifting away somewhat from the "falling prices" scenario. I doubt that this in itself would be sufficient to take the bloom off of the deflation rose but when combined with the soaring price of grains, it certainly has to regarded at the very least as a contributing factor.

Note that the gasoline market has retraced 61.8% of its entire decline from the peak made earlier this year. That is a key Fibonacci retracement level. If it powers up and through this level, particularly if it closes the week above this level, odds will favor a push towards $3.20 initially followed by a test of the high near $3.40 if the former level does not hold. Generally speaking, if a market fails at the 61.8% level, it will drop back towards the 50% level and retest that to see if the bulls are still eager to buy.

By the way, if the shift towards inflation fears has gained ascendancy over the fear of deflation, you silver guys will be very happy indeed. Again, let's watch what develops. It is still too early too tell and we are not out of the wood yet on the European debt mess but things are indeed getting interesting.

Retail Sales Number Derails QE Expectations

This morning's Retail Sales number came in above expectations giving those expecting a Fed move on the QE front at the upcoming Jackson Hole summit reason for pause. The number caught a lot of folks off guard and while it was not spectacular, it was not in the "the consumer is not spending money" category. The market interpretted it as another reason for the Fed NOT TO ACT.

Gold, which had been moving higher in its recent consolidation range until yesterday, immediately fell back on the data as the further squashing of another round of bond buying in early September seems even more remote at this point.

Still it did attract value based buying just above the $1590 level and is currently back above the psychologically significant $1600 level. Whether it can stay there without strong expectations of a forthcoming QE is unclear however.

It does seem as if stubborn strength in crude oil, particularly in Brent, is keeping selling from becoming too aggressive in gold especially with the bonds moving lower and interest rates moving up again. The CCI and the CRB are both higher today which helps feed into more of an inflation scenario rather than the deflationary psyche which has gripped these markets for so long. Additionally, an article in a prestigious European based newspaper dealing with a potential breakup of the Euro has kept a decent floor under the gold price.

A quick explanation for those who seem unclear about my comments from yesterday regarding hedge fund money flows. I mentioned that gold needs a spark to break it out of this range to the upside; one which will bring in speculative flows from the hedgies on the long side of the market to send it forth on a trending move higher. Let me remind those who are unclear on this - hedge fund money flows dominate our financial markets today, whether we like it or not. If they are not committing to a market in size on the long side, it is not going to be able to sustain a trending move higher. Most of that crowd are momentum players meaning that they need to find a market that is moving and has some momentum to it, whether that is up or down, in order to make any money off of their algorithms. For the most part, the hedge fund crowd is mindless relying on its computers to do their thinking for them. When markets range trade, they lose interest because these systems generally do not perform well in sideways markets. Locals and other large traders love these conditions on the other hand.

What is supporting gold on the downside is not hedge fund money but rather value based buying originating out of Asia and from other large entities which actually study fundamentals and make buying or selling decisions based upon that analysis. We curse the hedge funds when they are liquidating longs or establishing new short positions in gold or in silver but keep in mind, it is these same clumsy trading clods that also drive these metals higher when their computers flip over to the buy side. Love 'em or hate 'em, they are a force to be reckoned with; any analysis of the markets that disregards their impact is not worth the paper it is written on.

Gold Retreats from the Top of its Trading Range

Nothing doing on gold being able to break out from its consolidation pattern. Last week I showed a chart with gold right at the very top of that range and working into a heavy resistance level. Today it failed to better that resistance and was shoved back lower meaning that the odds favor it working lower within that range from here as we wait for the next round of buying support to surface. It should be able to garner buying near $1600 initially on down towards $1585 should that not hold it.

Keep in mind that this market must have a spark to take it up and out of this range. Until it does, the consolidation pattern remains in effect.

There are several factors working in gold's favor but until we get the hedge fund community to come back in on the long side in a big way, the needed firepower to kick off a trending move is not there.