Thursday, January 6, 2011

Earlier today, I received from our friend Andy Maguire, a London bullion dealer, some very interesting notes concerning the precious metals market, which was hit hard this week.  Although I posted the full text of Andy's message in the chat room early Wednesday morning, I am unable at the moment to find the material archived.  For those of you who missed it the first time, or who want to save a copy, here it is again: "I just got back on the platform yesterday and am in meetings for a couple of days as we catch up with clients and kick off the buying for 2011. I will get into the chat room before NFP on Friday though. In the interim we are back in strong buy mode again, already started to layer into this naked unbacked paper selling. The end of year thin traded holidays going into xmas was the first year in the decade where my stink bids didn't get hit. Usually the balance of power shifts to the HFT outfits in the thin conditions where the stops are chased both sides. That didn't happen to any degree, especially on the short side, which is very telling. Other than day trading short silver and gold had to wait for the Boyz to get back to work yesterday. (Monday was a holiday in UK Europe etc.) "This is just a  bluff poker hand and by the time we get through NFP they are going to be called. Embedded shorts are going to have to cover or suffer a royal religious experience. All we are seeing is the same old washing cycle active so that the bullion banks can cover. However the lines cross very close to here so any benefit gained by flushing out the visible stops will be lost as new real strong hands pick their

Today's analysis of the Dollar Index raises some speculative points to counter the argument that the buck is in the early stages of a bull market.  There is evidence to the contrary, and although it is subtle, I find it persuasive. See if you don't agree.

At first glance, the Dollar Index appears to be consolidating for a push to 82.25, a prospect that would put gold and silver quotes under pressure for perhaps 2-3 weeks if the rally commences soon.  While I wouldn't recommend impeding the rally too aggressively with short offers, it's worth noting that the B-C consolidation that would ostensibly enable DXY to reach 82.25 has followed a point 'B' high that narrowly failed to take out the look-to-the-left peak highlighted in the chart.  This suggests that even if the Dollar pops and makes it to 82.25, the rally should be seen as gutless at its core. The further implication is that this is no nascent bull market taking shape in the dollar, but rather a garden-variety bear rally that has drawn all of its strength from not unreasonable fears that Europe is headed toward collapse.

Propelled by a short-squeeze that detonated on the opening, the futures were hell-bound for at least 1278.75 when the day session ended yesterday. Night owls should consider themselves fortunate if there's a pullback to around 1267.25.  That's the Hidden Pivot midpoint of the pattern shown, and it would be an opportune place to attempt bottom-fishing -- or better yet, to get on board the rally belatedly using camouflage.

March Silver taunted and teased yesterday, breaching some minor supports while leaving a few more-important ones at 28.350 and lower intact.  Nothing so innocuous can be inferred from the way it crushed a supportive trendline we've been watching that goes back to Halloween.  The breach was more than would have been necessary to merely run stops, and so we must heed it as a sign of possible weakness creeping into the intermediate-term trend. We'll continue to sift the evidence today, but a pop to at least 29.910 is needed to turn the hourly chart bullish. Indeed, anything less will be warning of a possible relapse.

A prior low at 1352.00 can still serve as a bearish tripwire, since any downthrust that exceeds it would create an impulse leg of daily-chart degree. The intraday charts remain short-term bullish nonetheless after yesterday's $16 rebound off the lows, but buyers will have to push the futures decisively past 1378.90, the Hidden Pivot midpoint of the pattern shown, to seize the advantage.  That would be telegraphing more upside to at least 1386.20.  Alternatively, if there's a dip below 1371.50, the point 'C' of the pattern, we should infer genuine weakness rather than bullish accumulation.