Brief pause this past week could prove to half-mast flags
The following are quotes from the bible of classical charting principles, “Technical Analysis of Stock Trends,” Robert Edwards and John Magee, 1948 (Fifth Edition).
“A flag looks like a flag on the chart….It might be described as a small, compact parallelogram of price fluctuations.
It usually forms after a rapid and fairly extensive [price thrust] which produces a nearly vertical, or at least quite steep, price track on the charts.
Sometimes each rally and set-back within the flag takes three or four days, rarely more. In other cases, prices will skip back and forth between the upper and lower flag boundaries in a single day or two.
Then suddenly prices will erupt with a new burst of activity from the end of the flag and push straight in another advance [decline] which practically duplicates the original ‘mast’ atop which the flag was constructed.
They [flags and pennants] are both ‘half mast’ patterns which ordinarily form after a fairly steady and rapid (steep) price movement.
In applying the measuring rule, go back to the beginning of that immediately preceding move, to the point where it broke away from a previous consolidation…(or through a significant trend line or resistance [support] level)…
Then measure the same distance from the point where prices break out of the flag or pennant, in the same direction.”
There is a fair chance that half-mast flags are forming in Gold and Silver. At this point, the price action fits the definition perfectly. Sideways price action that extends more than a few weeks disqualifies itself for the flag definition.
If these pauses in the Gold and Silver debacle prove to be flags, the targets would be $18.27 for Silver and $1,139 for Gold
P.S. I do NOT recommend any additions past the fifth or sixth additions. I had a chance to purchase the copyright of this book years ago. I wish I had done so. The current copyright owner, W.H.C. Bassetti, has ruined the original manuscript (IMO). DO NOT buy editions past the sixth edition. To purchase the copyright to a classic, insert some recent charts and add one’s name as an equal author is not my definition of integrity and honor.
Australian Dollar could be creating a major top
Actually, I leaned positively toward the longer-term charts in the Aussie until last Friday. With the massive decline in raw materials, the fundamentals and technical factors could be lining up. Notice what happened to the Aussie during the major decline of raw material prices in 2008.
The monthly and weekly charts display a possible 2-year symmetrical triangle in the Aussie. My default bias is to normally assume a period of congestion will be a continuation pattern. This could still be the case in the Aussie.
As a chartist I am intrigued by the formation of a rectangle during the past eight months. This rectangle will be the key to the next major move in the Aussie. I will follow this rectangle in whichever direction it moves. I believe there is a 20 cent advance or decline looming in this market.
Sorry, but Silver is just a commodity
And as such, there is a history in many other commodity markets that shed light on the significance of the cost of production.
Silver bulls claim that the all-in cost of producing Silver is around $25 to $30 per ounce. Nonsense. And even if this were the cost of production, there has never been a guarantee that commodity producers must money all the time. There are numerous cases in the commodity world when a market price remained well below the cost of production for months and years at a time.
- Silver bulls treat the marginal cost of production as if it should be the floor price. Yuk, yuk. In all commodity markets the rule is that marginal producers will lose money. That is why they are considered to be marginal producers. It is the definition of marginal producers.
- Much of the world’s Silver is produced as a by-product of mining other metals, meaning that the cost of production cannot be viewed as an “all-in” cost, but rather on a cash basis. A substantial portion of the world’s Silver is being produced for under $12 per ounce.
- Even if a particular mine is operating at a loss, there is a good chance it will continue to operate. There are two reasons for this. First, producers are, by nature, bullish and will remain optimistic for prolonged periods of losing periods. Second, it costs a significant amount to close and eventually re-open a mine — so producers will keep operating it.
- Energy prices are a key element in the cost of production. It is possible that the cost of production could decline if energy prices decline.
So, Silver bulls, take your cost-of-production argument to someone who cares.
We are in the sweet spot of the vertical decline. The targets of 1331 and 1251.
See my posts last week on Gold for more background. Click here. We are not at the beginning of the end or the end of the end. We are in the middle of the end.
You all know that I am constantly attacked by Silver bulls for bad mouthing their tabernacle. I blocked one Silver bull from my Tweet updates due to rude behavior. Following is the email I received from him (her? it?). This demonstrates how rapid Silver bulls can be. Notice the special Gmail address the Silver bull secured for his (her? its?) correspondence to me. Maturity on display.
Peter Doosh PeterisADoosh@gmail.comPeter Doosh wrote: so you challenged me on a DM after i challenged you then blocked me so i couldnt answer your challenge shows me how Big of a Coward Dooshbag LOSER you are, and already look Like in your picâ€¦old DOOOSHBAGWebsite:
Silver bulls are all talk and no action
I have traded futures markets since 1975. For those of you who failed basic math, this means I have traded for almost 40 years. I have seen every conceivable market situation.
Every market has its perpetual bulls and perpetual bears. But of all markets, Silver attracts the most fanatical bulls of all. When Silver bulls are right (BTW, that is not very often — Silver has experienced significant price gains in only five years since 1972) it is because they are brilliant. When Silver bulls are wrong (nearly 85% of the years since 1971), it is either because they have been victimized (by the exchanges mostly) or because most other market participants “just don’t get it.”
So, Silver bulls, here is your chance to scoop up your worshipped metal at an historical bargain price. The charts you publish on your blogs verify this fact. Relative to the vast ever-increasing glut of fiat money printed by central banks, inflation-adjusted pricing or the standard set by some robed Spanish king 500-plus years ago, your metal has never been cheaper.
So, it is time for you to put your money where you mouth is. As a trader I do this every day. I am presently short Gold and Copper. If I am wrong on these trades I will count than as loses, not as part of a grand conspiracy against me. Losing trades are called losses. When I lose on a trade, I am a loser, not a victim.
I have put my money where my mouth is to be short precious metals. If I am wrong — so be it, I am wrong on more than 60% of the trades I do. If I am right, also, so be it. A trade is a trade is a trade is a trade. Silver is something to trade, not an idol to worship. So, it is time to put up or shut up!
A review of the metals charts is in order.
The daily Silver chart has penetrated an extremely important “line in the sand” at 2615. The longer term chart would indicate Silver is headed toward a retest of the 2008 high at 2150+. But, here is the good news, Silver bulls — the market is probably much closer to the lows than to the highs. After all, Silver is getting closer to zero than its 2011 high of $49.
Actually, the charts in Gold looks more bearish to me than do the Silver charts. Now, this is interesting because I am on record as being a super-cycle bull on Gold. Wait just a minute! I am a long-term bull on Gold, yet I am short! To a Silver bull, this is would be sacrilege. To a trader, this is a trade. That is the major difference between traders and Silver bulls. To traders, markets are just a tool. To Silver bulls, Silver is an idol to worship.
The massive decline on Friday completed a massive top on the daily, weekly and monthly Gold graphs. The charts can be defined by a single word — UGLY! Should Gold rally, short sales in the 1520 to 1540 zone would be highly appropriate. There are various downside targets in Gold depending upon whether one uses a closing price chart, a candle chart or a bar chart. The lowest target I have is around 1131. Do I think Gold can go that low? Not really. But a decline to the low 1300s is very possible. In fact, two days like last Friday and we will be there.
The longer-term chart in Platinum is also negative. The decline on Friday would indicate that the market is headed toward the lower end of its broad trading range at 1375 or so.
The weekly Copper chart also remains quite bearish, although as I pointed out this past week, the CFTC COT data are extremely constructive. Yet, price is always king, and the burden of proof is belongs to the bulls.
Finally, let me point out another fascinating chart development — in Crude Oil. The Crude Oil weekly chart displays a symmetrical triangle within a larger symmetrical triangle, as shown below.
A case can be made that the shorter-term triangle was completed this past week, along with a H&S top pattern. However, this breakout is not yet convincing. The chart indicates a possible target of 77.35. Conventional wisdom holds that there is only one way energy prices can go — up. This is why the 77.35 target is probably correct.
$SI_F, $GC_F, $PL_F, $GLD, $SLV, $HG_F, $JJC, $CL_F, $OIL
The market is experiencing a MAJOR chart breakdown.
I try to pay little attention to what markets do intraday. The closing price each day is really all that matters. The most important price of the week is the Friday close. Why? All the HFT systems are flat — all the day traders have gone home. The Friday close is the price determined by traders willing to hold a position over a weekend.
Should Gold close at or near current levels ($1532), it will be the lowest Friday close in 21 months. A massive top may be completed today. Gold bulls, take this seriously … very seriously.
From an historical perspective the Yen move is only just beginning
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