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Double Agent's soon to be No.1 contrary indicator blog!

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i have been posting my erratic musings on selected threads and forums for a while now and thought it would be a good time to collate them somewhere where i can look back in a few years and see how wrong i was!

 

here is a recent post copied from 24k: Is the current PM bull run nearly over?

 

You'll excuse me for starting a new thread rather than 'tagging' this onto either the Silver or $USD thread; however, I would like to generate discussion on a cross-section of topics, with the intention of recognising that we are approaching a 'junction' in this recent PM bull run, that could end quite soon and not be repeated for a while......

 

$USD. The DIX is rapidly approaching what looks to be significant support (see here & here). Now whilst, I think there will be obvious support here in the short-term, I am torn between whether this will prove major support. I would tentatively side with NW's analysis. I say 'tentatively' because, there are conflicting elements that support a substantial bounce in the $USD.

 

Silver. I recently watched Mike Maloney say that he had not become 'attached' to silver and would sell when the time is right. Well, I chuckled to myself because I would find it hard to envisage ever selling all of my silver stash! :D Point being, I have to acknowledge the 'emotional' influences on my judgement versus a clinical scientific approach :roll: . To this end, I think the current silver bull-run is just about done. Pix. Recently posted a chart on gei which shows a silver target of approx. $30, this opinion is shared by James Turk. However, I do not see this myself :think: , basically, through my own TA, I think that the trend of the overhead resistance was altered significantly during the 08 crash. Similarly, I have looked at key horizontal support/resistance lines in silver and these point to a top of just under $26 v.soon.

 

Who is 'right' on the finer detail of where the current silver bull will top is not that important to me - if it goes to $30 in this run I will be v. happy!. However, my quandary is that whereas I can see how the obvious support in the $USD may be breached, my own analysis points to a current silver top coinciding with a $USD low.

 

QE. PMN posted a very good article recently which is hard to ignore. To quote form the article:

 

The U.S. Federal Reserve, which is in charge of the world’s reserve currency has gone completely and totally insane. Every time the stock market is down 2 points some maniac academic with a printing press delivers a speech about how much money they are going to print, basically daring anyone to short or sell the market. No one is smart enough to know how much QE is priced into the market, is it $500B? $1 trillion? $3 trillion? No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets. It doesn’t matter if all of the economic data miraculously comes in extraordinarily bullish over the next three weeks. The markets have put the Fed into the biggest box they have ever been in. They must do QE2 at this point and they probably have to do it big. The problem is, with the equity market up at the levels it is I don’t think ANY amount of QE2 will cause a rally. In fact, this might be the biggest “sell the news” event in the history of the stock market. If you are smart you will take appropriate actions while you can and sell to someone with less of a clue (believe me there are plenty out there).

 

PS. pix, i have added my own interpretation how the 'old' OH resistance can be met with the new resistance here (assuming it does hit the 'old' OH resistance)

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If you're not sure of silver, why don't you swap into gold? Less risk, and you will still pick up gains in bullion prices.

 

I still have a core 10% in silver, next to 50% in gold [much of which used to be in silver]. But any more buying of silver will be only to trade its volatility. I got my recent speculative trade in dollar/ silver wrong when I sold round $18, but this doesn't concern me much given my core bullion investment.

 

This trading of silver's volatility is to increase dollars not silver ounces. A missed opportunity for sure... but more will come along. The main thing is not to lose dollars. I see this dollar/ silver trade as a hedge suitable to my own requirements.

 

I'm now looking for a pullback in silver to buy and then sell on another spike.

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If you're not sure of silver, why don't you swap into gold? Less risk, and you will still pick up gains in bullion prices.

 

I still have a core 10% in silver, next to 50% in gold [much of which used to be in silver]. But any more buying of silver will be only to trade its volatility. I got my recent speculative trade in silver wrong when I sold round $18, but this doesn't concern me much given my core bullion investment.

 

I'm now looking for a pullback in silver to buy and then sell on another spike. I see this dollar/ silver trade as a hedge suitable to my own requirements.

 

Hello RH

 

I am reluctant to sell any substantial physical silver holdings; i have been selling a lot of small periphary silver holdings (scrap sterling, pre-47 bundles, odds and ends) which would not amount to more than 5% of my total physical position.

 

tbh, i am reluctant to sell any more physical as i do not have the confidence (in the greater economy) to risk this - bear in mind i am about 75:25 silver to gold, hence, i don't have a greater proportion in physical gold like yourself.

 

i am contemplating perhaps 'freezing' some of the current price on my physical position by taking a smallish short position (SSIL etc.)

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i posted this on 24k a few days ago - that bottom trend line is the crucial tell-tale for me

 

monthly.gif

 

 

 

i should have focused on the monthly ag rather than weekly - here's why

 

agmontly.gif

 

 

doesn't look good for sterling short-term, but it's tight

 

cableweekly.gif

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re-drawn ag linear multi-year peak trend resistance line and acknowledge it's not log (as pointed out by pix - see 2nd graph) - added possible support lines 1,2&3 assuming ag does not break through resistance

 

agresistancelevels.gif

 

agloghybrid.gif

 

 

 

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re-drawn ag linear multi-year peak trend resistance line and acknowledge it's not log (as pointed out by pix - see 2nd graph) - added possible support lines 1,2&3 assuming ag does not break through resistance

 

agresistancelevels.gif

 

three steps to cheap silver by eddie cochran-agent:

 

Now there are Three Steps To cheaper silver

Just look and you will plainly see

And as life travels on

And things do go wrong

Just follow steps one, two and three

 

Step one - you keep an eye on the first support and keep your stops tight

Step two - if it fails, just buy in again and believe you're right

Step three - you better make sure its physical you're buying if this baby comes into play

Yeah! that sure seems like cheap silver to me!

 

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That's quite an interesting chart, I'm always interested in different ways of looking at price action. Is it yours?

 

yes - i was trying to fit some sort of basic trend to the logarithmic scale and whilst playing about with different trend lines noticed the 'mirror image' effect with an overhead resistance line added for good measure. I have twisted the chart around to exaggerate the pattern. Interestingly, when i fitted the mid line that cuts through the symmetry it intersects the date line around the same place (time) as the natural conclusion of the pattern (there or there abouts).

 

I suspect other people have probably seen this pattern before me, but i can honestly say this was a genuine first time for me. I wonder now what conclusion (if any) can be drawn from it, suffice to say that it may signify that a change in the bull pattern will begin to occur next year?

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CIGA asked: “DA it would be very helpful to me if you could explain fundamentally why this pattern may play out?” in response to a chart posted by myself on cg's - GBP: 'imminent downleg and how to profit from it' thread.

 

The following chart is a long term look at GBP/USD vs. EUR/USD (or presumably Deutschmark /usd pre 1999). As can be seen, the relationship between sterling & the Euro vs. the usd was broadly similar; discrepancies such as the period between 1992-98 were followed by similarities again (e.g. 1999-2007). Then in 2008, the Euro gained strength against the pound, which was amplified in the period following the 3rd quarter crash. As of today this wide disparity still exists which is interesting when you consider that many commodities have risen back to (or exceeded) their pre-2008 crash prices.

 

 

5612846134_6dde319b35_b.jpg

 

 

 

The following chart is a long term look at Euro vs. usd: As can be seen, an argument can be made for a 'fair-value' band between (approx.) 1.10 – 1.45. In 2008 (before the 3rd Quarter 2008 crash), Euro strength broke through this band to new highs of 1.60 (approx.). Since then it has moved down in waves (wedge formation shown) and interestingly has fallen below an upward trendline support.

 

5612265999_542972e4f8_b.jpg

 

 

 

Therefore, before looking at the shorter term chart I am already of opinion that the £ is fair value against the $USD and marginally undervalued against the Euro. The following chart is a variation of the one I posted on cg's thread:

 

5612847096_be24205fd4_b.jpg

 

As stated previously, given the fact that I am of the opinion that Sterling is undervalued against the Euro, I am looking slow the cyclic pattern continuing (since 2009) of the pound slowly strengthening over time.

 

Fundamentally speaking, we are comparing variations of Fiat money here and hence when we compare their 'cost' against Gold and (even better) Silver, we see an entirely different picture of paper money weakness throughout (post 2002). Similarly, why from a fundamental viewpoint is the Euro so much better than Sterling? Given the troubles of the PIIGS (we still have not seen Ireland default yet) and the spectacle of the Spanish crisis unfolding, unless we see a two-tier Euro (Club-Med & Eire vs. the Nordic contingent) or something similar, I don't see why that particular brand of fiat is any better (or worse) than Sterling.

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so is silver putting in an intermediate top?

 

looking at the log scale graphs, it is still too early to tell of course but assuming silver is putting in an intermediate top how will this look on the monthly charts?

 

aglogapr11.gif

 

aglogapr11detail.gif

 

 

at present, i am drawn to make comparissons with the 2006 intermediate top where the volatility was massive

 

agvolatility2006.gif

 

agvolatility2011.gif

 

 

so having made the assumption that silver is putting in an intermediate top, where are the next levels of support?

 

on a very short time scale (daily) this would be my best guess

 

agdailysupport11.gif

 

 

whereas, looking further out, this weekly tried and tested support could come into play in the months ahead

 

agweeksupport11.gif

 

 

however, the bottom line here is to expect volatilty and hence use caution if trading - the swings in the 2006 interm top took place over a 5 week period and within a 30% price range!!!!!!

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../..

5612847096_be24205fd4_b.jpg

../..

 

well, if are you wrong once you might as well keep the losing streak going right?

 

yep - i guess like a gambler who has already lost on the first race, i might as well keep going with this one until my luck changes!

 

but, there is more to it than that - i just cannot see sterling going to parity with the euro anytime soon (though, I respect that if it happens, it pretty much doesn't matter whether i can see it or not)

 

the problem i have with the parity (and beyond) call is twofold: fundamentals and history

 

fundamentals - the dollar decline and euro strength is masking a lot of the fundamental problems with the euro. the irish 'sweep it under the carpet' approach will only work for so long before we have Greece Mk. 2. Thereafter, we have italy and the biggie spain waiting in the wings. Take a look at these 10year bond yields and ask yourself are the problems fixed?

 

 

20110419-c2x67nqif5r9uxjtfpuidtsp4m.jpg

 

 

Now, this isn't a $usd is great thread, usd, sterling, euro etc. all have their problems and the true nature of these problems (currency debasement) is only shown when plotted against the king of currencies, gold.

 

so, is sterling any better or worse than the euro, neither in my opinion and hence do not see any reason for greater widening going forward.

 

history - sterling and the euro usually move in a similar fashion against the usd. however, this is not always the case; such as the period between 93 & 97 (deutschmark) and now since 2008. Now, (and this is the kicker for me) - the damage to sterling has already been done in 2008, the gap will (eventually) get smaller. Similarly, the big damage previously occurred in 1993 and finally closed up in 1997:

 

 

cablevseurousdupdate.gif

 

 

What of the recent euro breakout vs. sterling? well, i think i have learnt my lesson charting currencies, short-termism is far too dangerous to chart and TA will either work or not. Let's take a closer look at two instances of euro breakout against sterling (a & B):

 

 

eurgbphistorical.gif

 

 

in both instances, the breakouts occurred as resistance was broken, yet what caused the massive drop down in 1997? = fundamentals. The 'idea' of a one size fits all currency rather than the stronger deutschmark became reality (transition period). Fundamentals will 'out' again, as the problems of the euro cannot be ignored anymore. This is my best guess at what's going to happen and it's important to compare and contrast with the previous chart*

 

 

eurgbpmay11update.gif

 

 

*but i reserve the right to be 'wrong' (again!)

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please note - the following has been lifted from here (for the sake of references)

 

.../...

 

 

 

I believe I am correct in saying that the speed with which silver has declined recently has not been seen in this current bull (e.g. Since 2002) following a significant peak (http://www.24knews.com/viewtopic.php?p=12287#p12287). Having already looked at the possibility of a '2006' type correction (http://www.24knews.com/viewtopic.php?p=12123#p12123), I think we can ignore the comparisons now as that peak to trough move took 6 weeks and was approx. 1/3 correction (ditto 2004).

 

Looking at the Ag price today, I note that it went below $34, so in two weeks we have already corrected approx. 1/3 ($49+ to $33+).

 

So what next, well, I would suggest that we have not seen the bottom (of this current move) yet, but given the abnormality of the speed down already, who knows!

 

2004 & 2006 corrections:

 

 

ag04ii.gif

 

volatility2006.jpg

 

 

To recap then, I don't think this correction is similar to 2004 or 2006 and add to that the Q1 2008 & Q3 2008 corrections for good measure. So where can we draw similar patterns?

 

Hmm, well I think I have found one, and it's not silver – it's palladium. And it's recent too.

 

The premise here is twofold; primarily, the bull run (2009-2010) in palladium displays similarities to the silver bull run (2009-2011) and secondly, that palladium is somehow acting as a precious metals canary (as per this thread title).

 

For the sake of this study, I want to focus on the primary reason stated above (the secondary reason – we can leave for another day.)

 

Take a look at the action in palladium since the early 09 lows:

 

 

pdagstudyiv.gif

 

 

a – confined to an upward channel

b – breakout of channel resistance

c – testing channel exterior as support

d – rising fast and ultimately too quickly

e – violent move down and ultimately re-testing channel exterior as support

f – and the bulls have it

g – hitting long-term trendline resistance (see previous charts in this thread for palladium)

 

 

Now take a look at silver:

 

agpdstudyiv.gif

 

 

Going forward, I would say that if silver is to replicate the action in palladium, silver needs to avoid a head and shoulders type pattern in this consolidation period. Furthermore, regarding 'g' (hitting long-term resistance), I would be happy with the logarithmic trendline for now! (http://www.24knews.com/viewtopic.php?p=12244#p12244)

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.../...

 

Take a look at the action in palladium since the early 09 lows:

 

 

pdagstudyiv.gif

 

 

a – confined to an upward channel

b – breakout of channel resistance

c – testing channel exterior as support

d – rising fast and ultimately too quickly

e – violent move down and ultimately re-testing channel exterior as support

f – and the bulls have it

g – hitting long-term trendline resistance (see previous charts in this thread for palladium)

 

.../...

 

 

(Please note this model is now work in progress, so expect revision and updates as appropriate)

 

Hypothesis: The silver price pattern is replicating that of palladium.

 

Testing: The testing of this hypothesis will occur in real time as we follow the action in the price of silver.

 

Analysis: The palladium price 'model' as displayed above has certain key points (a-g) that have either happened with silver (a-d) or that may occur in the future (e-g).

 

(a-d): It took palladium approx. 18 months to move from the 08 crash bottom to the intermediate high (d). The move was approx. 250%

 

It took silver approx. 29 months to move from the 08 crash bottom to move to the intermediate high (d). The move was approx. 400%

 

Intermediate Conclusion: In terms of the model time-line, silver is replicating palladium by a factor of x 1.6. In terms of price, silver is replicating palladium by a factor of (have you guessed it yet) 1.6.

 

Going forward (current testing): It took palladium 10 months to go move from the intermediate high (d) to the current high (g). Therefore, if the model is viable, silver will hit a new high in 16 months.

 

How to test this going forward: First and foremost, if silver is replicating the action in palladium, we need to see a h&s pattern avoided in this consolidation period. Furthermore, it took palladium approx. 5 months after the intermediate high to get back to the same level. This would equate to the silver price being approx. $50, 8 months from now.

 

Possible variation within the model: If the model holds true, it should be noted that volatility in the silver price (esp. on the final move up to 'g') can result in a quicker move to the trendline high 'g' which should be treated as a constant for the sake of this model.

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from here

 

../..

 

Pixel8r wrote:It will be interesting to monitor it over the next year and see how it plays out. The danger I can see is if it works, it could lead trades to be placed just before it doesn't. :think:

 

i hope there is enough capacity within the model to allow for some flexibility. the most specific 'test' will come this xmas/new year:

 

triple-agent wrote:Furthermore, it took palladium approx. 5 months after the intermediate high to get back to the same level. This would equate to the silver price being approx. $50, 8 months from now.

 

i feel far more confident with this target than trying to put some figure on a bottom; i cannot help but feel that some bottom chasers ( ;) ) are going to get their arses ripped on this one. I don't think the risks to physical buyers will be that great but those trying to trade this (eventual) turn on leverage must be either geniuses / fools / insiders*

 

*delete as appropriate

 

For instance, the Andrew Maguire bottom in early 2010 would have wrongfooted many leverage traders

 

 

andrewmaguire.gif

 

 

Therefore, is it not hypocritical for me to say that i feel more confident with the new year $50 call?

 

Well my answer is no (unsurprisingly!) and this is my reasoning; predicting the turn here is where the difficulty lies - once the turn is in and confirmed properly (e.g. having been tested at least once, maybe twice / or relatively close enough to constitute a test), the bulls should return slowly and then quickly as the price rises gain momentum. At this point, a $50 target in January will hopefully seem a 'given'. Furthermore, if it is within 10% of that target, it will not matter one jot as the flexibility in the model should allow for it*.

 

Also, thereafter the call of a new high in 16 months is where perhaps the most variation lies:

 

triple-agent wrote:If the model holds true, it should be noted that volatility in the silver price (esp. on the final move up to 'g') can result in a quicker move to the trendline high 'g' which should be treated as a constant for the sake of this model.

 

So to sum up - The model will have clearly failed if there is no turnaround this summer / autumn, and at this point the 8 & 16 month projections will be dead anyway.

 

 

*fine-tuning of the model is an on-going process, the nearer you are to the target the more precise you can be

 

 

edit - with hindsight maybe the A.Maguire was not the best example to use

 

edit 2 - i am open to suggestion on what is considered an acceptable error of margin to test this pattern

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A nice bounce in silver, but one thing that strikes me is that there is still quite a drop underneath it (as a consequence of the size & speed of the correction). It's important to stress that no one can predict which path silver will take should it break through the current support. However, should it wish to test the most obvious long-term support thereafter ($29ish by my reckoning), there remains a gap. I have no idea whether it will test that range; there should be good support in and around $34 (a double-bottom if you like).

 

Therefore (from a purely TA perspective), in the intermediate term, I am neutral. Long-term, I am bullish (whilst the palladium model remains valid).

 

In the very short-term, I am bullish - until the current support is broken at least.

 

bearsilver2011.gif

 

 

edit: the case for the support at $34 is stronger than that of $29; as the GBP chart supports the former (strong long-term trendline): see above post

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