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Steven Vincent has been studying and trading the markets since 1998 and is a member of the Market Technicians Association. He is proprietor of BullBear Trading which provides market analysis, timing and guidance to subscribers. He focuses on intermediate to long term swing trading. When he is... More
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  • It's Time to Buy Precious Metals for a Long Term Hold 0 comments
    Apr 1, 2010 5:05 PM
    I am placing gold and silver on official BullBear Trading Service long term buy signals as of today.  The commodities complex in general is breaking out across the board in spite of continued resilience in the US dollar and in general world markets are flashing an inflationary growth profile.

    The charts seem to be saying that the fundamentals on silver are pretty strong. Silver has been trading in a much closer relationship to copper and other economically sensitive industrial metals than it has with its traditional pairing, gold.



    Silver and copper seem to be fairly indifferent to the strength or weakness in the dollar whereas gold has continued to trade as a near mirror image of the greeback.


    In my view the markets are saying that growth is in the pipeline.  We anti-monetarists may not like it, but the message of the market, as I interpret it at this time, is that the world economy is poised to go through a growth phase.  Monetary inflation stimulating economic growth is what the Keynsians have promised and the markets seem to be responding.  

    Will the growth be sufficient to negate the significant debt imbalances imposed by this strategy?  We should remember that there is as yet an entire world to build out and consumerize and this may indeed be the engine of growth going forward.

    It has long been my view that the events of 2007-2008 were analogous to the Panic of 1907--a "money panic"--and not to the crash of 1929.  I do not believe that we have seen our '29 equivalent yet--and it may be some time off.



     Let's look at silver first, since it has been bullishly leading gold higher.  An article breaking down Gold and Crude Oil will follow.
     
    Here's a long term chart beginning with the major low put in after the Panic of '08:
     

     

     
    The chart shows us a 5 wave advance to complete Wave (1) followed by an ABC three wave correction to Wave (2).  The breakdown of the Wave (1) bull channel appears now to be a bear trap.
     
    Here's a closer look at Wave (2) and the ensuing advance from the low:
     

    We can see that a reverse head and shoulders breakout has occurred and that important horizontal price resistance has been overcome.  We can also see that the breakdown from the head and shoulders pattern that developed from September-January (and which many technical analysts noted fearfully--myself included) has failed and together with reversal of the trend channel failure is leaving behind a very bullish double bear trap.

    Here's a closer view of the reverse head and shoulders which includes today's price action:

     

    We can see that silver is now in wave v of the first wave of Wave (3) from the Wave (2) low.  That should complete in the vicinity of the downtrend (red) from the $21.35 high.

    Of note is the bullishly smaller right shoulder and the fact that this pattern is almost entirely unrecognized.  The distance from the head to the neckline added to the neckline breakout gives us a completion target of $20.96 for Wave (3).  That will give bears a chance to call for a double top during the Wave (4) correction which may potentially develop there.  On the other hand, this could be an extended Wave (3).

    Also of technical significance is that the neckline breakout occurred precisely at the 23.6 Fibonacci retracement level of the entire bull market in silver.  Today price reclaimed the 61.8 Fibonacci retracement of the decline from the  Wave (1) high.  All moving average in all time frames are bullishly aligned and rising together.  Hourly RSI is somewhat overbought so look for small pullbacks on the hourly chart to enter a position.  

    We should enter long now with the knowledge that short term there may be a pullback against our position. This is a long term position trade, not a swing trade (though we may swingtrade to take profits and add to our position along the way).  Our stop level is a close below the 61.8 Fibonacci retracement level of the decline off the major top at $21.35, which also corresponds with the 31.8 Fibonacci level off the Wave (1) high as well as the bottom of the recent minor wave iv at $16.43.  A close there will tell us that this analysis is wrong and we should exit our position at a loss right away.
     



    Disclosure: Long GLD, SLV
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