Right now I am seeing dollar rebounding and silver down 12 cents trading at $7.23. Could silver stage a 30%+ decline like April 2004 and Dec 2004? The reasons it could are the fi=ollowing:
I see silver now not unlike August - Oct 2003 (purple circle). In fact August - October 2003 commercials are shorting on average of 90k contracts, above the current 80k range. If we go with this assumption that we are in another purple circle, the max silver will go down is 200 dma of around $6.8 (red line). The real treat of this is once the consolidation is over (max 2 more month to go), we will be looking at a new leg up surpassing $10. Last time silver burst out of purple circle silver gained 60%+ from $5 to $8. 60% means from $7 to $11.50, which is consistently with our 1st profit taking level of $12 outlined in the March Newsletter.
For silver stocks, I want minimum of 100mil oz of silver. There are only two I like - SRL.v (100-200mi oz for C$70mil) and IMR.v (300mil oz for C$180mil). See January newsletters for their descriptions.
US Dollar
I still see any dollar rebound at this time to be brief (i.e. less than 1-2 months), followed by another breakdown and a new low of the dollar in 2005. Then we can talk about a sustainable dollar rally for 1-2 years. Make no mistake however, I believe we are in the last phase of commodity bull.
History of 1970's show commodities (including gold) were susceptible to about a 40%+ correction. Relevant is the fact we haven't had a meaningful correction yet (lasting 2+ years). Ergo, one is long overdue. Need to stand by the exits closely. Although I don't see $430 be breached, if $430 is breached it's a clear signal we need to re-examine our model.
Let me clarify the severe correction I mentioned will pave way for the real commodity bull that will make Nasdaq seem child's play.
John Lee
john@losb.net
www.maucapital.com
30 March 2005
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