Dark Cloud of Indecision
"The problem in silver is that there is no easy solution, save sharply higher prices. When the silver manipulation breaks, it will be disorderly and disruptive. It will be a matter of great upheaval. No official wants to be responsible for that." (Theodore Butler, March 15, 2005)
I have been grappling with the Silver Charts and, to save time for those who are only mildly interested in the subject, I have been unable to come to a definitive conclusion.
But there is one thing that is absolutely certain in my mind: The next move in silver - up or down - is going to be violent.
First let's start with the gold chart on 3% X 3 box reversal Point & Figure format. (Courtesy Stockcharts.com)
It gave a buy signal on November 17th 2004, and that signal was not a minor signal. Conventional theory says it should rise to at least $506 in the next move - which move may be delayed by some shenanigans from the Central Bankers. But the emphasis is on the word "delayed.
Now, when I look at the bar charts of silver, I get mixed messages.
First, looking at the weekly and monthly charts below (courtesy Decisionpoint.com), there are two ways of looking at these charts:
The "glass half empty" people will be seeing an exponential blow off having peaked at over $8, followed by a retracement that is bearish - evidenced by the falling tops on the oscillator in the weekly chart, and by the significantly overbought oscillator in the monthly chart i.e. these people will be calling for a pull back.
How far could it pull back? Well, according to the following chart, the pullback could be as low as $5.41 Readers should note that this chart is a 5% X 3 box reversal chart where the scale was chosen to cut out all "noise" that may be flowing from price manipulation by the traders.
The "glass half full" guys will be arguing that what we are really looking at on these same two decisionpoint.com charts are "triangle" formations, which are continuation patterns, and they will point to that same continuation pattern on the Point and Figure Chart above. They will also point to the Point and Figure Chart below, and argue that given the pullback to the trendline has already occurred, the next move is going to be "up"
Now, those of us who are awake, will recall that the very first chart I referred to above was the gold chart - which has given a "buy" signal some months ago. And the following chart is a relative strength chart of the silver price divided by the gold price.
Firstly, the trend of the RS chart is bullish in favour of silver
Secondly, if a breakout should occur on the upside, the measured move will take the ratio to 20.51 - which in itself will represent another breakout.
Are the silver company charts telling us anything yet?
SSRI is in No Man's Land, and is waiting for a direction, but the optimists will point to the fact that it, too, is close to its rising trendline
PAAS, on the other hand, is reflecting a chart pattern that could be argued to be bearish (there is possibly a diamond reversal pattern that has been emerging since 2004).
So, where does all this leave us?
Last week I attended a presentation by a company that is developing a software program for enhancing the quality of digital photographs. This software takes out the "jitter" that results from hand movements that in the past we used to need a tripod to avoid.
Also, I have been investigating the radiology industry over the past few weeks, and this is also showing strong signs of moving into the world of digital imagery.
But we showed some months ago that the net contribution of photography to the overall demand for silver is not particularly high when one factors into account the high proportion of the silver used in this application that is reclaimed.
And then I have been monitoring the Nymex inventories of silver, and have noticed - with some surprise - that these inventories have been virtually stagnant at around 100 million ounces for some months.
So, what appears to me to be happening is that the photographic industry is virtually self sufficient, and the jewellery and electronics industries must be getting their supplies from the mines and from some small stock piles; and the only "real" activity that is taking place is in the COT arena. (But all of this ignores the guys who are quietly accumulating silver for investment purposes; and I ask myself if these guys are being supplied by the traders who are shorting the market. If so, we are facing a pressure cooker type explosion at some point in the future - which seems to be what Ted Butler is expecting)
About the only chart that I have seen in the past few days that is giving me any clue as to where we might be headed is the chart of the oil index; and I reproduce it here - just because it is too damned interesting to ignore
It's too early to make any call, but the charts are showing serious indecision which could lead to a break in the silver price - either way.
Having said this, the break seems likely to be strong and, if to the upside, all hell could break loose.
The problem is, if you pile in now and the break is to the downside, you could lose your pants.
But I'm quite happy to keep my fairly significant holding in MACMIN, which announced just this week that it will be producing silver powder during the quarter ahead.