Thursday, April 2, 2009

Beware the technicals

I continue to see investors try to trade precious metals based purely on technicals. I still believe this just isn't possible as these markets are too thin, especially silver.

I think gold is now entering the final stages of the B wave decline. This is the period when the gold bull is going to try to shake off all the weak riders before the next leg up.

Take a look at the first chart of silver. Technically it looks like a complete breakdown. The technicals would obviously keep any sane investor from buying here right? This thing was obviously going much much lower.

However, anyone watching the COT reports at that time would have noticed that the commercial traders were the most bullish they had been in four years. Smart money knows you can't trade silver off of technicals. Smart money buys value.

At that time, the smart money was snapping up silver as fast as the retail crowd wanted to unload it to them.

Now look at the second chart. Who came out the winner here the technical traders or the value investors?

In my last post I pointed out just how cheap mining stocks are right now. Well silver is every bit as cheap if not cheaper than mining stocks. (what does that say about silver miners?)

I think silver is poised for an explosive move higher once gold's B wave ends and the C wave starts.

However don't get fooled by technicals. I wouldn't put it past silver to do something drastic to get all the the weak hands to cough up their shares to the smart money just like it did in 07.