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Silver Blow Out, But Where To Buy?

Commodities / Gold and Silver 2010 Oct 06, 2010 - 06:02 AM GMT

By: Bob_Clark

Commodities Best Financial Markets Analysis ArticleHow to enter silver safely - If you have been following my posts on this site, you will know that I am a fan of silver. I have written a few articles about how I thought it would trade. Approximately 1 year ago in "Gold a recipe for disaster" I presented the argument that gold had just made an 8 year low when it went clunk in 2008  At that ime I said the metals would not top out the next move up until 2012 at the earliest. 


Nine months ago I wrote "Will gold get compressed",at that time I suggested that due to seasonal factors gold and silver would not advance dramatically and that late summer would be a better time to allocate funds.  Then at the beginning of August I wrote "The time to buy silver nears",at that time I suggested that we were at the point where we could expect the silver market to start to move up and resume it's uptrend.
 
In the articles I write, I try to stay with a trade and do follow up to see how we are progressing, that way I can give something of value to my readers. Following a trade is how we learn.
 
What the cycles are saying 
Silver and SLV (the exchange traded fund that many trade) have broken through to new multi year highs and the questions becomes, is this the start of something big? How high will we go? Is it too late to enter and if not, where can we enter safely?
As we are in new high ground, I thought it would be a good time to take a look at where we stand today and maybe answer a few of the questions.
 
The chart below on the left is gold, not silver.  I used a gold chart because all the silver charts are too compressed to show the strong 8 year cyclicality we have seen over the last 30 years and they both have the same longer term cycles. On the right is a chart to orient us.  It begins at 2001 and is current. It contains the 8 year cycle represented by the blue lines in the gold chart. As you can see the 8 year cycle is dominant and any analysis has to include it. The important thing to notice is that the last 8 year top occurred very late. This is a sign that the sum of all trends large than the 8 year cycle are going up.  If the cycles bigger than 8 years are pushing up, it means that the  8 year we are in now should push higher for at least 4 years which would be to the middle of the 8 year cycle we are in now.  That should be the minimum before we top out. So 2012 at the earliest. 
 
There is a 24 year cycle present as well and it  made a low around 2001 . If we look at the chart of gold,  we see the sum of all trends larger than 24 years seems to be going up as well, so cyclically, there is a lot of lift under silver (and gold).  If we assume that the 24 year cycle will turn in the middle of it's duration, then that fits again with 2012. I want to point out that there is no reason to think both cycles won't translate or top later in their respective spans.  In fact they should.  So 2012 seems like a bare minimum for timing a top. 
 
 

Just a theory.
How high will we go? My proprietary targeting methods project an objective of $32.97.
Is it too late to enter safely, will there be another drop like we saw in 2008? 
 
I don't think there will be a big drop, I think the Fed wants higher precious metals prices.  Crazy talk?  Maybe, but try this idea on for size.  The global consensus is that rising gold and silver prices are a sign of quantitative easing.  Here is the thing, the business people and market participants world wide, want easy money to push up asset prices and create demand from consumers. Look at the reaction to Japan's latest actions, they are salivating like Pavlov's dogs. I think the Fed has figured out that rising metals prices instill confidence, not fear.  A big clunk in the metals market is the last thing the fed wants now. Yes they will try to keep things from running amok on the upside, but there is not the urgency there used to be keep a lid on them.   
 
One more chance
There is a chance to enter silver coming.  Later this month we should make a 3 month trading cycle low. It may not be much of a dip, maybe just a nod of the head to the cycle but that is when to enter if you are not in yet. If you are already in, that is the place to add. After this window there should be nothing until next year.
 

In the above chart we see some interesting things.  I have marked the first 3 month low in orange.  Ihave marked it on the blue one year cycle line as well.  This is the low we are expecting toward the end of this month. Except for the first 3 month low in 2009, we have had large percentage moves out of the first lows in all the other years.  The fact that we compressed into this summer's 1 year low and then broke out to new highs, suggests that we will get another large move from the coming 3 month low. 
I want to point out that the low in 2007 did a dirty and came in a month later and took out  what many thought was an important low from the previous month. That is always a possibility, don't be fooled.
 
Bottom line
A breakout of major resistance this early in the 8 year cycle (only 2 years along) points to a sustained drive toward a possible 4 year top in 2012.  That means that the silver market should see buying on dips and a late top of the current 1 year cycle, sometime in the spring of 2011. The target for that top is $32.97.
There should be some turbulence coming later this month (Oct) which may spill over into November.  It will be a good time to enter the silver market.
 
Struggling? If you are trying to trade using conventional technical tools and having mixed results, there is a reason. Trading is not like anything else we do. There is a dominant force in the markets that has to be known and understood.  Until you do, you will struggle. I have created a 4 video set that will change your perspective forever. Check my blog for details.
 
Markets are manipulated, you are either with them or a victim.

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is linesbot@gmail.com.

© 2010 Copyright Bob Clark - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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