Sunday, March 9, 2008

More Charts

Last week saw Crude Oil and the Euro hitting new all time highs, and the US Dollar Index hitting a new all time low. At the same time, gold was flat for the week, closing on Friday at the same point it opened at on Monday.

The first chart that I'd like to keep in this blog for my records is a weekly chart of silver. Silver has been white hot for the last few months, and I hope this following chart puts this current move into perspective:

The above chart shows 2 previous occasions where silver went parabolic. These occasions can be put into perspective by analyzing how far the price peeled away from the 50 week moving average. As you can observe, when silver is more than 30% higher than its 50 week moving average, the risks of holding silver are increased.

This indicator by itself is not a sell signal, as silver can still become hotter, which is what happened in May 2006. I do, however, see this as a caution flag. Furthermore, silver put in a bearish candle last week.

Another chart that caught my eye this weekend was a chart outlining Silver's commitment of trader structure. The last time I showed this chart was in this article. This time, I want to draw attention not to the commercials, but to the level of open interest:

In the chart above, open interest is represented by the line, and not by the bars. I have drawn circles when open interest bottomed, and where it has now peaked. In my interpretation, this is a potentially bearish development.

Bottom line for silver is that the trend is up, so shorting silver would still be unwise. However there were some cautionary flags raised this week in the charts, so one's focus should now be on capital preservation strategies, such as hedging.

This next chart is a weekly chart of platinum:

Platinum is another commodity that until recently was going parabolic. Last weeks price action may suggest that this party could be over. The bears seem to now be in control, as evidenced by last weeks candle. Furthermore, the RSI and ADX readings were nearly off the charts.

The next chart is a daily chart of the HUI Gold Bugs Index:

In my opinion the HUI is struggling to surpass the 500 area. Last week, the bulls and bears waged a back and forth battle, with the result being a draw at this time. Until a decisive victory is claimed, cash may be the best bet.

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