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May 15, 2010

Louder Noise

Friday's pounding of stocks no doubt has many traders nervous that the bear has returned, but at this point it seems to me that the market gods are simply doing whatever they can to keep people on the sidelines for the last stage of the cyclical bull. If the weakness continues and manages to violate the February low, a different outlook will be forced upon us, but until then, these whipsaws are nothing more than noise.

S&P 500 moving average study

One should note the surge in put buying that accompanied our mini-crash:

put call ratio stocks

Furthermore, the McClellan Oscillator's moving average is at a level that typically accompanies bottoms, not tops:

McClellan Oscillator study

My expectation is that a "surprise" move back to the highs of this cyclical bull will get the public chasing the rally and produce the blow-off move we have anticipated. Just keep those lines in the sand under close eye.

Even as equities roil traders, the precious metals sector is looking more and more attractive. Mining shares managed to end positive Friday, and my favorite holding in the group, Silver Wheaton, sported a 3% gain.

Silver Wheaton weekly chart

The shares have also surged over 60% off the February low and appear to be in a solid position to significantly extend those gains should precious metals complete their parabolic run.

gold technical analysis

I wouldn't rule out a temporary dip back below the $1220 breakout level just to shake a few riders off, but my persistent expectation for a parabolic run appears to finally be about to pay off.

A run to $1400 for gold would constitute a 13% gain from the present price. However, I believe silver has something grander in store for us.

silver technical analysis

Since silver is a thinner market, I would not rule out an extension past the $24 mark. Also, during the three previous parabolic runs of this bull market, the highest the gold-silver price ratio has bottomed is 51. Therefore, if history is any indication, a $1400 gold price should have silver surging past $27. I wonder what SLW will do under that circumstance!


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