Jobless claims 'beat' expectations today and while I have no business nor interest in analyzing that report, this morning silver sold off. Perhaps the traders, human and computer, saw that headline and thought: 'NO QE AHHH!' and sold it down. However, price recovered and re-took the $27.00 level, and is currently trading at $27.21. Maybe this is a bottom and today's reversal was highly significant. I have no idea!
What has my interest today is the ratio chart of the Dow Jones Industrial Average to Silver. I think there are divergences there worth mentioning:
I see a divergent high on June 28th, 2012, with the RSI and MACD not confirming price. Price is king after all but I see divergences in the gold/silver ratio as well. Here is a weekly view with Fibonacci moving averages and stochastic indicators:
This view of the ratio speaks volumes. First, silver may have completed a 50% retracement from the 2008 high in the ratio (93.73) to the 2011 low (30.70). It also has tested and thus far held the 600 week MA -- I view this as significant because the 60 area has the been the price this ratio has oscillated for over a decade (chart below). In the chart above, there is negative divergence in the MACD histogram, although that has not had a bearish crossover, which is something that will happen soon if indeed a top in the ratio is in place. I also show three different slow stochastics indicators. Highlighted above is the fact that multiple periods, even the 89 period, a fairly long-term indicator, has had a negative crossover while in very overbought territory.
A significant correction was necessary! The price ran up too much too quickly. This is what happens when leveraged professionals are piling in and the average joe loads up on AGQ to try and capture a piece of a move. We market participants went through a parabolic blow off top, and a 50% retracement is to be expected. The move below the 60 area on the ratio longer term is meaningful in my opinion, however, and silver market experts like Eric Sprott expect silver to head towards the 16:1 ratio. The correction at this point appears to me like a beautiful back test of the 60 area.
Here is a cleaner monthly chart of the Gold/Silver ratio:
Why ratio charts? I don't think it's as simple the silver price and it's technical pattern. If silver is truly to be the star performer of this decade, as Eric Sprott believes it is, it will massively outperform basic benchmarks like the DOW, and it will also beat out its cousin gold.
Sources:
No comments:
Post a Comment