One of the most important aspects of investing is that it is genuinely hard work. There are no shortcuts. Taking it easy for a while simply isn’t an option if you strive to make a decent return every year. One has to stay focused, in order that they will be able to anticipate and then take advantage of great opportunities, things which are rare. And yet, we are now being handed a great opportunity on a silver platter. This is an opportunity that could be life changing for many. I know that I have said it before, and that to some of you may think I sound like a broken record, but it is crucial for investors to act quickly in order that they might profit from this chance of a lifetime.
Several updates ago, in the October 2007 issue of the Resource Fortunes Premium Newsletter, I outlined my expectations for the price of silver during the coming years based on the gold-silver ratio. I made the case that silver should soon being accelerating its advance against gold if my thesis were true, and I think we have just witnessed the early stages of the declining gold-silver ratio.
Lately, silver has been making huge daily swings, and the big picture is becoming clearer and clearer. If the weekly chart in this month’s update is correct, we are on the verge of completing the presented head and shoulders pattern, triggering a gold-silver ratio of 12 to 14. If the neckline is taken out, we should see the next stage in this cycle occur, i.e. another acceleration in the declining gold-silver ratio. If this transpires, silver producers and explorers could really take off, sending their share prices into orbit. Breaking this neckline would cause the price of Silver to explode, so much so that we might even begin to see the price rising dollars at a time, instead of just cents, quite similar to the price action in the late 1970s and early 1980s.
The difference is that this time the rise will be the cause of an ever growing crowd of individuals, rather than two brothers.
Personally, I’m boarding this train before it leaves the station. Even if it turns out that I’m a bit early, I’m confident that the real thing is underway and would rather suffer in the short term than be left wondering whether or not I should buy a ticket as silver vaults higher and higher.
To help keep the big picture in mind, this issue will analyze weekly, rather than daily charts.
GOLD - Silver ratio
The above chart is showing us that the anticipated head and shoulders pattern (see the October 2007 update) is nearing completion.
If the neckline is taken out to the downside, a price target of 14 (or 12) will be triggered. As an example of what could occur, we can look at the chart and see what happened in 1997 once the support line was taken out around the 70 level. The ratio quickly plunged under 50.
A similar acceleration should occur again now if the neckline is broken, and the RSI and MACD are both indicating that such a fall can be expected:
- The RSI is back in negative trend territory and has a lot of room before oversold levels are reached.
- The MACD is still in negative trend territory, and on the verge of producing a fresh sell signal. This indicates that a new (bigger) wave down is about to start.
Gold’s weekly chart clearly shows the strong advance that Gold has made over the last couple of years, and we can also see that the $1,000 mark isn’t just a psychological barrier but a technical one as well. At the current level, we see a couple of resistance lines causing gold some trouble, which could act as a brake to slow the current rise.
This expectation is further confirmed with the possible negative divergence that is forming in the RSI and Buying power, not to mention the very high levels being sustained in the MACD. These indicate that a correction may occur before another attempt at the $1,000 level takes place.
A step back towards the $900 level, or even $850, could occur without causing serious harm to the technical outlook.
Silver has entered into another parabolic rise, just like it did in 2004 and 2006. Every time, these rises move further and extend themselves for longer periods before topping out. The big question is where the new top will be made. Looking at the chart, it could have already been set last week (magenta line), but it also could go further into the $20-ties. We still haven’t seen the same readings in the RSI and Buying Power as we did at the prior highs, so an advance towards the $25 level could be possible before the true interim high is established.
Whatever the high turns out to be, the correction will most probably be equal in ferocity to the previous ones. Thus, this will give sideliners yet another great opportunity to buy a ticket and take a window seat for the next parabolic rise higher.
Oil tested the magenta trend channel for support and after this proved to be solid, it finally broke above the psychological $100 mark. While it is still moving higher, it will run into some resistance very soon. This channel has more or less a 45 degree rising angle, making it a very solid trend channel for higher prices.
Should Oil stay within this channel, an advance towards the $110 level is possible before a correction occurs. However, the RSI, Buying power, and MACD are all telling us that a new wave could be coming our way. Should this come to pass, the top end of the channel won’t hold the price, and Oil will be catapulted out of it towards much higher levels. Basically, the indicators seem to be predicting the reversal of what occurred in July/August of 2007, when Oil fell out of the channel to the downside.
The weekly chart of the dollar shows a very sad picture, the downfall of the world’s reserve currency.
A long pattern of lower highs and lows that resumed in late 2005 shows no signs of exhaustion, even if we might see another short-lived bounce very soon. This bounce upwards depends on whether or not the lower channel line holds. If it doesn’t, we may witness a further acceleration in the fall of the dollar, down quickly towards the 70 level.
The readings in the chart are contradicting each other. The RSI is signalling that a bottom is near, while the Selling power and MACD are telling us there’s more to come. Whatever happens, the long-term trend will remain overwhelmingly negative until a higher low is produced.
This is a great chart, showing the tremendous advance Copper has made over the last couple of years! First, we see a parabolic rise from roughly $150 to $400 in less then a year. Such a rise will almost always lead to a long correction in order to digest the advance. As can be seen, this consolidation pattern took Copper almost 2 years to complete. It was not until just last month, when Copper broke above the magenta trend line, that a breakout of the consolidation was confirmed. This break higher could be very, very important for future price movements of Copper, because this could be the setup for another parabolic rise with enormous potential. Price targets of $625 or even $780 are not unthinkable.
When such an important pattern is ended, we often see a back test of this pattern before the real rise begins, handing investors a perfect (and safer) entry point. The big question is whether or not this will be the case here with Copper. Such is hard to tell, and therefore it may be prudent to build a position now and then add on to this if the back test should occur.
Chief Technical Analyst
Resource Fortunes LLC
The above is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at http://www.resourcefortunes.com/. We currently offer a 30-day trial subscription for $2.99