Something weird happened this past week.
Gold and silver rallied, and rally they did! This past
week silver skyrocketed over $2.50 up 9% for the week. Gold
was up over 3% during the same time period. But that is not
the weird part.
Abnormality
Silver and gold were pretty much the sole assets that rallied
this week, and that is not normal.
The S&P 500 (NYSEARCA:SPY) was down 0.5% this week.
The Nasdaq 100 (NASDAQGM:QQQ) was flat.
The Dow (NYSEARCA:DIA) was down 0.8%.
West Texas Intermediate Crude was up only 0.4%.
And, interestingly, Longer Term US Treasuries (NYSEARCA: TLT),
which usually perform opposite of the risk assets, were also up
2.6%.
What is it, if anything, the silver and gold markets know that
the other risk assets do not?
Normality
Normally silver, gold, oil, the euro, and the US stock market
are positively correlated. The below chart displays the long
term correlations among silver (gray line), oil (gold line), and
the S&P 500 (red line). The correlation between all 3
assets has been quite positive for some time, but has slipped
somewhat in recent months.
A Tell for Jackson Hole?
This Friday Ben Bernanke and the Fed are meeting in Jackson Hole
to decide the fate of America. Maybe that is a little
exaggerated, but given that Mr. Bernanke seems to drive the market
more than earnings, fiscal cliffs, elections, or any other
acceptable reasons, forgive me for being a little sarcastic.
The media (and on Friday the stock market) got giddy over a
letter
Bernanke wrote 8/22 to the Chairman of the House Oversight and
Reform Committee. In this letter he said nothing more than he
always has, "the Fed will provide additional accommodation as
needed".
Speculation about Bernanke's intentions run rampant.
If I lived in a bubble and only knew that silver and gold
rallied that much last week, my first inclination would be that the
Fed is going to announce something big this week.
But, then why didn't the stock market, oil, and other risk
assets confirm the metals rally last week?
Do We Really Need to Know the Reason for the Silver and
Gold Rally?
One of the luxuries technical and logic-based analysis affords
is it doesn't really have to be concerned with reasons.
Reasons are a justification for something that has already occurred
and likely can't really help us out now. They are in the
past.
If Bernanke is going to announce something big, then Silver and
Gold have already reacted to it, and we are likely late to the
party if we were to make a trade based on what he announces.
A Better Strategy than Policy Speculation
At the ETF Profit Strategy Update we use technical analysis to
help us get ahead of trends. We did this with Silver in late
July.
On 7/29 I was watching silver prices and informed our
subscribers in our Technical Forecast that, "The rising red short
term trendline support line currently just above $26 is also a good
stop loss spot and support line to watch. Good risk / reward
set ups such as these are what we look for in our trading."
The following
chart
accompanied that commentary showing the breakout, 200 day MA, and
trendline support levels:
On 8/5 after that rising red support trendline held prices I
followed up with, "For aggressive traders that are long SLV I have
identified two good stop levels with the horizontal support at
$26.55 as well as the lower rising support trendline at
$26.15."
The stop from that trade has now been moved up to $29.25 for
aggressive traders, locking in great profits.
What's Next for Silver and Gold?
There now exists two open gaps that more likely than not will
eventually be filled likely putting some pressure on Silver
(NYSEARCA:SLV) prices. Longer term Fibonacci resistance and
trendline resistance are coming into play on Gold (NYSEARCA: GLD)
as well.
If Ben Bernanke wants to make some big announcement on Friday in
Jackson Hole, then Silver and Gold likely have already capitalized
on it and discounted that information. By then it will likely
be too late to profit from his intentions.
At the
ETF
Profit Strategy Newsletter
we avoid getting distracted by the color commentary from the media
concerning reasons and opinions of what may or may not come to
fruition. We use price, sentiment, and analysis to help us
make trading decisions and stay ahead of trends before they
happen.