Gold, Silver, and S&P500 Correlation Breakdown | Silver chooses to follow Gold rather than the S&P 500

The last few days have been all over the map, but it can be clearly seen that today resulted in Silver deciding to trade like a precious metal on the back drop of possibly the worst economy backdrop in the history modern economics. Watch for silver out performing gold over the next few months, including dropping less in a correction than gold.

Silver looks prime for break | Gold : Silver Ratio is looking pretty extended

Silver has just managed to start an uptrend with 2 days of higher highs.  I am expecting a rally to $42-$45.

Currently the Gold : Silver ratio is $1799.40/$39.03 = 46.1

 

Silver seems found its precious metal feel in starting in August 2010 with a rally from $17 to $30 by year end.  Silver stalled out in January but then quickly increased to around $48 at the end of April .  The sharp pull back that follow was perceived as a the "end to a bubble" by the mainstream media only to the $30-$32 range has held as support very well and is likely to be the low or a while.

Since the historic Gold : Silver ratio being around 16, this convergence will be of epic proportions.

Silver retraced 61.8% from the previous move which we can label Wave 1, this pull back has likely ended based on the bullish setup.  Candlestick pattern can be arguably considered a Morning Star.

The slow Stochatics is oversold and the MACD looks like it is rejecting the 0 level which will result the MACD line crossing the signal line over the next few days.

S&P 500 drop Recap and Marc Faber logically breaks down exactly what is wrong with the world economy and how to fix it

Zerohedge provides commentary + transcript of the interview

Ultimately the next 2-5 months will be an illusion, where a bounce in the economy is strictly due to technical levels (outlined in previous posts before the heavy selling came into the market: S&P 500 Analysis | August 2011 | Bear Market emerges  & S&P 500 Analysis | Long Term Outlook | Economic End of Days?).

Technical charts for S&P 500 July-August 2011, for analysis see the above links

July 27th, 2011

August 2nd, 2011

August 9th, 2011

 Things are getting real folks.  Metals one year from now are likely to be easily 30-50% higher especially gold, silver.

Yamana Gold Inc. | TSX : YRI | Technical Analysis: Huge upside potential

Yamana Gold Inc ( TSX : YRI ) has the potential to make a huge run.  This technical setup is almost so perfect that it raises some questions in my mind. 

I have not included any technical indicators in the chart above, however, I do want to note they all are arguably bullish.  The focus of the chart above is the break out of a triangle that formed since 2008. 
The upside potential if this leg is the same size as the previous up move is around $22-23.  However, it is likely if gold does get moving, $32 is not out of the question.   Also an interesting note if you take the same size move from the 2003 lows to the 2008 highs, the move exactly ends at the recapturing of the center line in the andrews pitch fork ( or channel lines).  Typically if this is the start of a bullish move, the price will be contained within the andrews pitchfork trend lines. typically oscillating around the center line.  This is an indication of how undervalued this stock really is.

The month has just started, however if the price can hold on and remain above the breakout level, this market could move very quickly to the upside.

Looking at another gold player Barrick, see how the center-line has already been captured, another piece of evidence to show how undervalued Yamana is.

Gold $ 1700 | Gold breaking to new highs | Precious metals rally of downgrade

Gold's natural reaction occurred as soon as the price started to trade.  Within 5 minutes over $20 gain.  The price is currently sitting at its all time high of 1695.50.

Hang on folks, you ain't seen nothing yet.  Other PMs jumped as well with Silver trading over 4% higher on the open. 
This is related to the US debt downgrade, along with instability in Euroland and in other parts of the world. We are witnessing history and there is a lot more surprises / certainties to come.  Keep focus on PMs as currency wars are heating up.

China adjusts currency peg, flexing muscles as an emerging leader and economic power.  
Bank of Japan intervenes in currency markets to devalue the Yen
ECB continues to buy large quatities of bonds all to help saving Ireland, Greece, Italy, Spain, Portugal, etc

Live Gold, Silver, Platinum, and Palladium below (Kitco.com) 

S&P 500 Analysis | Look out Below | Mid-term bearish but watch for bounce this week

A in-depth analysis on the S&P500 long term outlook was completed last week.  Today we saw something that was "unexpected", when everyone thought the relief rally would occur after the debt deal was signed, the market had different thought process.

INDEX	VALUE	CHANGE	% CHANGE	TIME
DOW JONES INDUS. AVG	11,866.60	-265.87	-2.19%	08/02
S&P 500 INDEX	1,254.05	-32.89	-2.56%	08/02
NASDAQ COMPOSITE INDEX	2,669.24	-75.37	-2.75%	08/02

 I sold my bear position today a bit too early at around 1-2pm but with reason.  The markets are extremely over extended, the likelihood is a rally will come the remainder of this week.  My game plan is to wait for the market to trade back to the 1290ish level before getting a 2 month options contract with the expectation of the Head and Shoulders predicted drop which comes in at 1150.  There are serious issues and this market could continue its decline next week.  However, the government of the US has just extended the debt limit by another $2 trillion which means any Stimulus talk, QE3 talk, etc could send this market roaring to the upside.... but remember this roar to the upside is not because companies in the US are doing better or because the economy is getting better it will be due to the fact that the USD which is used by companies to report earnings / Market value will be devaluing.  Making 10% more revenue but the currency which the revenue is based on has declined 10% in the same time frame is still a net value increase of $0.  

If the predicted path of last post is correct, the next couple years will be quite rough.  Again this is a long shot but anything can happen at this stage of the game.

Here is the chart from my previous post without comment

UPDATED: S&P 500 Analysis | Long Term Outlook | Economic End of Days?

See update below.

I want to proposal a "Economic Doomsday" scenario as more of a thought experiment than anything else.  This is a scenario that potentially could unfold based on the current price action and wanted to view this chart with Volume, MACD, and Slow Stochastics to show a technical argument for December 2012 Economic End of Days.  I would highly doubt that the economic powers will let this unfold yet it is interesting nonetheless.

There are 6 key points that will be discussed from the above chart along with supporting evidence from Volume, MACD, and Slow Stochastics.

1. The orange horizontal line is based on March 1994.  This note is combining myth and technical analysis to show that a potential target for a drop could be this orange line (435).  If you look at the intersection of the orange line, red Vertical line (Dec 2012), and the mid line from the Andrew's pitchfork, it seems like a curious coincidence. 
2. Looking at the current retracement in the context of the top (2008) to the bottom (2009), the current move has retraced 76.4% which is a deep but not unheard of correction.  If this does signify the top, a impulsive wave 3 would be expected.
3. This analysis is uses  Andrew's pitchfork which helps track channel lines.  Obviously if this is not the top then the projected path would be incorrect but as stated in point 2, a 76.4% retracement has occurred so looking for a turning point now is likely if the long term bears are still in control.
4. An interesting trend line to watch.  The bulls will have to hold this line if the bears make a run for it. This level sits below all major moving averages (20, 50, 200 month MA) therefore this region should act as significant support on pull backs.  If these levels are sliced through as seen in 2008, limited support remains until 750.  
5. Another interesting trend line as this would technically be considered a neck tie of a 15 year head and shoulders pattern.  It would be impossible for a real head and shoulders pattern to play out as price action would have to drop less than 0 to complete the typical move equal to the distance from the head to neck tie. 
6. As mentioned in point 1, This intersection point seems relatively plausible if major panic selling started taking place.  Another interesting coincidence is from the most recent high a month or so ago to the intersection point 6, is approximately equal to the drop in time and price from peak 2008 to the lows in 2009.

The MACD on a monthly basis looks tired.  It has accomplished to make two strong moves to get above the 0 level however no significant pull back has occurred to reduce the strain on this indicator.
Looking at the Slow Stochastics one of two things are going to happen either the K and D line embed propelling the stock market higher as long as the K and D stay above the 80 level.  If the K like (yellow) falls below the 80 level expect it to head back to the 20 level resulting in a relatively hard sell off also confirming that the momentum has shifted.

I am reluctant to say a top is in, but with the geo-political craziness happening around the Euro Zone, the US debt ceiling, and rising oil prices.

Take this outlook with a grain of salt but know that there are people that consider this view relatively likely, so be wary in the upcoming news, stock market action and currency market.

 UPDATE

 Apparently the trend lines drawn with Andrew's Pitchfork are having some effect on price action.

 The rally today failed precisely at the upper trend channel.  This sharp failure leads me to believe that a decline is imminent.  Short Entry at sub 1300 with a stop at or around 1300 would be a low risk high reward short play.

This post will be updated again with any significant events tomorrow.