Wednesday, January 4, 2012

Question is... is the rally to be short, intermediate or long term?

I all but disregarded the pop up and out of the bullish looking pattern in the gold-silver ratio (GSR) because during the holiday slack, there was little to trust about market activity.  So, filing this one under the rule (in my own mind at least) of 'equal and opposite reactions', the liquidity indicator has been knocked down.

GSR is still well on trend above the 50 day moving average and still flashing bearish divergence to the broad rally, but it was the beautiful shape of the pattern (blue dotted lines) - which began to extend too far out of symmetry on the right side for me to continue to trust it as a short term warning - that had me on guard.

So now, while GSR is still in an uptrend, the suicidal sentiment among gold bugs and the silver crazies through the holidays, deeply over sold readings, along with the now messed up GSR pattern say the rally in the precious metals can continue for a while.  While the perma bulls are sure to swing toward the other pole - I hear anecdotal evidence of some flip flopping by a doomsayer or two - my newsletter will just manage the current targets for the near term and the current 'game plan', which looks to be on course.

The GSR remains in an uptrend and other indicators say that while relief can settle in pretty good here for the precious metals sector, there is reason for extreme caution in broad markets.  SPX has a target in the 1340 to 1360 area which, if attained, could signal the beginning of something very nasty.  But then some months down the road perhaps, we would have heroic policy makers in play and the precious metals would be squarely the focus of attention.

2012 is going to be filled with ups and downs, perceptions and mis perceptions.  Keep your thinking caps on at all times.  Don't get robotic.  You will get killed.

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