alice

NFTRH; Precious Metals Update

HUI has, barring a spectacular reversal, cleared the most recent target of 211 and with unrelenting strength.  I have added RSI to the weekly chart we have used to plot the bull market signals of 211 (door opener), 251 and 261 (confirmers).  RSI is getting over bought.  The implication is that when a correction comes it is going to be an extended affair unlike the sideways to down consolidation and small bull flag pullbacks to date.

hui.wk

Here is the daily chart however, showing that the March consolidation and micro pullbacks (bull flags) have taken daily over bought readings out of the picture.

hui

It can be stressful playing short-term manager on these pauses to refresh momentum, especially with FOMC so intimately tied to the process.  I prefer not to have to micro manage during in-day updates but beginning with an update about the first hint that HUI would break out of the consolidation just before the March FOMC release, right up to Tuesday’s pre-FOMC update noting the potential flag and a diminished reason for FOMC to toughen its stance, we have had to be very nimble and note these events in real time.  That is how dynamic the process has been.

This is the market we have right now, with an ominous (with less bearish mitigating factors under ‘bull market rules’) CoT but unrelenting bullish price.  Back on the weekly chart above, the next technical target for HUI is 251 (again, assuming no reversal below 211 to close the week).  That is the technical situation and there appears to be little resistance between here and there.

We have noted that silver vs. gold has been working on a trend change and that is a big deal because it not only indicates a beneficial environment for the precious metals complex but also for a more general ‘inflation trade’, which we have been anticipating for some time now.  In other words, if the trend changes to a new intermediate up trend in silver vs. gold then many other areas would likely benefit.  But the ratio is getting very over bought and that by definition means risk has risen (not only for precious metals, but most everything else).  I cannot tell these markets what to do, I can only tell you what the charts say.  Silver-Gold is bullish but it is getting very over bought.

sgr

As of now, the silver-gold ratio weekly chart continues to say that the trend is changing, but that long-term resistance has not been exceeded.  It’s another reason to expect that when the momo does wane, the correction will be significant.

sgr.wk

Here is an old weekly chart of silver that we used back in 2014 to have a look at the breakout and failure below what had been key support just above 18.  That is now incredibly significant resistance.  Indeed silver, with all of it fanfare of late could be interpreted to have made some nice signs toward a cyclical bull market but not yet entered one.

silver.wk

Here is the chart we have used for a long time now to gauge the prospects of a bull market.  The first signal was the rise above the EMA 55 for the first time since 2012.  This, like HUI’s break above its own EMA 55 is the first step.  HUI is moving above its equivalent 2013-2014 resistance but silver still has a well formed ceiling (above).

silver.wk2

Bottom Line

As we have been noting, momentum will blow out when it blows out.  HUI’s next technical target is 251 if momo continues.  Silver is approaching solid resistance.  The rally (and probable bull market ‘launch’ phase) is maturing but momentum is an animal of its own spirits.  While I continue to stress that this is probably a launch vs. a terminal event (blow off), I want to present the historical 2011 silver chart for perspective about what happens when momentum blows out.  Week after week in 2011 silver rose relentless until one week… it didn’t.

silver.wk2

With that said, I personally continue to take profits on the runs and re-buy positions on the pullbacks, using non-favored but necessary short-term micro management (per in-week updates) during this launch phase.  And oh yes, I still hold my puts on SLV and whether or not those expire worthless, hope to have a few in hand when the correction finally arrives.

For people trying to position for the long-term, we will continue to cover the situation closely from both technical and fundamental perspectives.  Very generally the former is in a pure momentum mode now, loading new targets above.  The latter remains positive despite the recent correction in gold vs. silver, commodities and stock markets.  As for an ‘inflation trade’, it is in process but it will only go as far as the silver-gold ratio goes.  “Gold vs. Silver”?  Yes, the gold sector usually bulls even as gold under performs silver and commodities (and sometimes stock markets).  But the sector’s fundamentals are fueled by the counter-cyclical atmosphere where gold leads these things.