Excerpted from the November 7th edition of Notes From the Rabbit Hole:
Precious Metals – Wild Man, Stodgy Old Man & 3 Snowmen
Let’s begin with a weekly view of the wild man… silver. I am going to tweak the target
to 31.50 from the previously noted 33. Before this target is reached, one can expect a
correction. At least that would make for a longer lasting and more sustainable bull leg.
Is today similar to the 2006 peak or is it something more dangerous, like the peak of
2008? I will say neither, because the T-bill yield (and thus Fed funds) had been rising
into the 2006 top, and declining relentlessly into the 2008 top. Today, we have a Fed
managing bottomed out T-bill yields and getting ‘creative’ in their use of additional
Add to this the sentiment backdrop, which had seen bull hubris permeate the commodity
complex in both prior cases while today, inflation (and commodity price) expectations
seem to be flaring wildly and out of nowhere (what, no deflation?!?), without the long
comforting cyclical bull market that buffeted the previous sentiment structure. People are
only now beginning to admit that there is a broad bull market going on.
Silver Bottom Line: The big picture sentiment backdrop is fairly positive, interim
correction is likely and the measured target is above 30.
Silver’s sensible, unspectacular dad continues to work its way higher without the fanfare
and theatrics, preferring to let the poor man’s gold do the heavy lifting in sector
leadership. Ever since it tore apart our former Gold-Silver ratio bottoming pattern, silver
has indicated the speculative potentials within the precious metals sector. Gold on the
other hand is in tow, lagging and rising.
The large Cup targets a Sinclairian 1,673 while the little one targets 1,463. Note how
gold’s MACD looks more sustainable than that of silver. Note that gold’s relationship to
silver will be an important signpost going forward because, when it is time to watch for
Bernanke’s ill-fated soufflé to collapse, gold will be outperforming as liquidity drains.
Gold Bottom Line: Gold, as it has done since the beginning of the secular bull market,
is rising steadily. That is because it is the default (as opposed to official) money in a
monetary world that has lost all concept of value amid waning confidence. Gold can
correct just as it has done periodically along the entire bull. Corrections are buying
opportunities for those with no or little insurance. The measured targets are noted and
they are just the technical objectives of the weekly chart. Ho hum.
Gold Miners – 3 Snowmen
Sometime, perhaps in the dead of winter or pre-spring thaw, if, while standing by the
punch bowl you happen to look out the window and see three snowmen (888) lined up in
a row, you might take note. That is our measured upside target for HUI.
As long as the breakout to all time highs holds – and I see no reason why it shouldn’t
since the impulsive rise last week was the second try for blue sky and closed the week
strongly – the target remains loaded. How can we possibly be going to 888? I don’t
know, I am just a chart twittler and this is the measurement.
HUI Bottom Line: Think about the power of the relentless decline to 150. Think about
the fear and angst involved therein. Now think about the potential for all those frightened
herds to become brave as they seek to negate those terrible losses. Think about what
could be a significant upside blow off. Think about the 3 snowmen.