"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
-
Sun Tzu

Friday, April 29, 2011

Back Into the Silver Trade

So went back into the Long Silver trade this week. Here is the anatomy ot the trade:


I intend to buy more should should Silver break $50. Current stop below the swing lows.

Market Commentary: A Different Rally

This rally in equities is different. I was wondering why stocks in my portfolio are moving slow despite the fact that the S&P500 has been making new hights. This latest rally has been fueled by strength in defensive sectors, which sets up a warning sign:


Good earnings and a weak Dollar obviously didn't help stocks of export-oriented industrial and technology companies. Going forward, we need to see a shift to these sectors to keep the rally alive.

Saturday, April 23, 2011

Update: the US Dollar

In a recent post, I hypothesized that the US Dollar could shape up a bullish "declining wedge" chart pattern, which could lead to a sharp reversal in Silver prices. A fresh look at the chart shows that the opposite happened: instead of breaking to the upside, the Greenback completed the pattern with a break to the downside. Therefore, the reversal scenario is -technically-  currently not in the cards.

A second look at the chart also reveals that downside momentum was declining at the end of 2009, indicated by a divergence in the MACD price filter. A similar divergence did NOT show up in 2011. The negative price trend  even seems to accelerate:


Keep an eye on momentum acceleration of the Dollar. The Greenback could dominate headlines in the next weeks.

Disclosure: Covestor Model Portfolio is long UDN and SLV.

Friday, April 15, 2011

Intermarket Analysis: Dollar-Gold and What it Means for Silver

It looks like the Dollar has been shaping up an interesting chart pattern over the last three months: a bullish declining wedge. A similar structure occurred at the end of 2009. Gold prices, which historically are inverse correlated to the Dollar, reacted textbook-like when the Dollar finally broke higher in December and were pressured for several months at the beginning of 2010.The positive correlation between the Greenback and Gold around May 2010 subsequently send out a strong bullish signal for the yellow metal:

The ten Million Dollar question of course is: will history repeat itself and will we see a similar pattern in the coming months. I would stay alert and look for signs of this scenario.

On a similar token, a sharp move in the Dollar would also pressure Silver, which is currently melting up. Since I'm currently long SLV in the Covestor model portfolio, I'm prepared to quickly close the trade should the Dollar brake its pattern:

Monday, April 4, 2011

Buying the Dips Visualized

Buying the dips has been a winning proposition throughout the two-year equity rally. From a technical standpoint, going long when the S&P 500 was hitting the lower Bollinger Band boundary would have resulted in gains four weeks after the event 7 out of 8 times (if you include the latest pullback in March). That's a 88% win rate. Maybe we shouldn't be so surprised of the strength of the recent rally. Neural networks have long recognized the pattern and probably trade been trading it quite profitably: