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Saturday, January 29, 2005

Excellent risk/reward point

Within the USD's expanding megaphone pattern, what could be developing right now is a right hand shoulder to a short, maybe 2-3 weeks long, head and shoulder topping pattern. After all, the USDX's prices are right up near the top of the megaphone. Friday the USDX went up but then retreated down. Still that intra day high could be the beginning of the right hand shoulder. The possibility can be seen in this chart:
The March USDX futures chart
It is something to watch for.

Is there anything else that tends to support this possibility? Here is something. In November of last year gold peaked at about $451 with open interest on the COMEX futures exchange at about 370,786 contracts. Historically there has been this massive reduction in open interest at this point, down to about 257,914. A reduction of 112,872 contracts. But, gold is down to only about $426. Historically, gold should be down a lot more with that type of huge drop in open interest.

Anything else? Yes, usually on the daily bar charts gold and silver move inversely to the USD. 2-3 weeks ago that stopped. All three, the USD, gold and silver are moving up slightly. Despite the USD moving up, gold and silver are moving up, too.
Here is a gold chart
Here is a silver chart

The USDX never did make anything but a dead cat bounce once it hit the old 1995 low support level 2 months ago, and it hasn't done anything particularly bullish since.

One more thing to keep in mind. There has been a fair amount of articles in the mass media about the bad financial and economic fundamentals of America and its USD. Some people take these bearish articles to be a contrarian indicator, that the USD might be putting in a significant bottom here. I do not look at these articles this way. "Price Action Makes Market Commentary.". This is a market principle to keep in mind. What price action caused all this market commentary? I would say it was the USDX getting down to the 1995 low of about 80 two months ago. This is quite significant so I think it is natural for there to be all this bearish commentary since there is some USD history in the making here but do not see it as a contrarian indicator. The USD still has a lot to go on the down side since fundamental financial/economic things for America and its USD are a lot worse since 1995.

Even one more thing. Ted Butler follows the COMEX commitment of traders statistics like open interest, etc. for silver. He is saying right now is another "mother of all buy points", "pennies to the down side, dollars to the up side". A great risk/reward situation in silver to go long.

Yes, 2005 is looking good.

"It is important to know the similarities between the Jelly Fish and Traders. Jelly fish really have no brain and still swarm." - or a lot of trading is not too cool. You will probably end up giving too much to the vig or vigorish.

Friday, January 21, 2005

Dow, XAU and the HUI

Over the course of the last year the Dow looks to be making a double top. The Dow's most recent high is a little bit higher than the Dow's top of January of 2004. This is good. It would be a final shake out of the weak shorts. In an inverse or opposite manner, it is like the lower right hand bottom of a double bottom that makes for a final shake out of the weak longs. The double top can be seen in this 2 year chart:
A two year chart of the Dow

Also interesting or tending to be confirming of the longer Dow chart picture/pattern is the shape of the right hand high of the Dow's double top. It is about a month and a half long head and shoulder topping pattern. Yesterday, Thursday (January 20), the Dow broke below the neckline of the head and shoulder pattern confirming this 1 and 1/2 month long pattern, which can be seen here in this 6 month Dow chart:
A 6 month chart of the Dow

Also interesting or tending to be confirming of the longer **bearish** Dow chart picture/pattern is the shape of the XAU and HUI gold and silver stock indexes. These should move roughly inversely or opposite to the DOW or other regular stock indexes for fundamental reasons. In their own way they are probably forming opposite **bullish** patterns, upside down head and shoulder patterns. Currently, they are probably forming the low of a right hand shoulder. Time will tell. These 2 indexes and their possible patterns can be seen here in these 2 year charts.
The XAU chart
The HUI chart

And, the longer term trend lines and the major triangular flag patterns of the gold and silver charts support the bullishness of the XAU and HUI charts. So the gold and silver charts are lending support or tending to confirm the bearishness of the Dow chart.

What all this is saying to me is that the USDX may not make it much above 84.

And since this has been talk about patterns: "Patterning your life around other's opinions is nothing more than slavery." -- Lawana Blackwell

Sunday, January 16, 2005

Gold and Silver Bulls Firmly in Place

"The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
- from Human Action by Ludwig von Mises

I'm not seeing any sign of voluntary credit expansion abandonment.
That would mean the voluntary giving up of political power.
What politician, high level bureaucrat does that?
There is no reason to doubt the gold and silver bull market.

Saturday, January 15, 2005

US Dollar - latest formation

The USD stopped going down (made a low) at the beginning of December. Then it went up and 5 days later made a temporary high. Then it went down and made a lower low. Then it went up and made a higher high. That is a megaphone formation. A line connecting the highs slopes upwards. A line connecting the lows slopes downward. This expanding price pattern dissapates bullish energy. This is a bearish formation and can be seen here:
http://futures.tradingcharts.com/chart/US/35
This bearish formation for the USD is bullish for gold and silver.

Tuesday, January 11, 2005

Broken Down Trend Lines

It is looking even better that gold and silver have bottomed just recently. Today silver broke up through its down trend line from its high of the beginning of December. Today gold broke up through its down trend line not from its high of the beginning of December but from its lower high of the begining of two weeks ago.

Today the dollar broke down through its recent 7 day uptrend line.

I can't say objectively what's going on here between the three, but gold and silver are looking even more like they have their corrections over with. At least that's what the seat of my pants are telling me. 2005 should be a great year.

Wednesday, January 05, 2005

The Dow and Other Items

Chart of the Dow

The Dow made a 2-b end of *upward* trend signal and at the same time an overlapping 5 down days in a row end of *upward* trend signal which was completed today. The 2-b was completed a little earlier.

A precious metal stock completed 6 down days in a row (end of downward trend signal) with its price almost touching a 1.) two year uptrend line and 2.) the bottom of its downward channel that intersects the uptrend line. Three bullish items converging almost at the same point on the chart. Amazing, what these records of human behavior do sometimes.

The dollar made it up to just below one of those percent reversal levels with one more level above to go, just above that one. The dollar may not make that higher one. Gold and silver's intra day patterns looked good.

10 and 30 year US government debt have been toppy for some months now. In other words it looks like increasing interest rates from here.

Not sure, but yesterday January 4, may turn out to be of significance. I don't know just what the exact nature of the significance is. Time should tell the nature of the significance if this is to be the case.