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January 5, 2007

Metals Lose Some Glimmer

Precious metals were hammered today after the government reported stronger-than-expected employment growth and wages, the implication of which is a longer wait for a rate cut from the Fed. With interest rates still dominating psychology, some rather impulsive price swings were the result. It is possible that we just witnessed a blow-off bottom to the recent slump, but blow-offs are difficult to distinguish from continuation patterns. Miners held up pretty well considering the shellacking the metals took, so perhaps their relative strength is a signal of a turning point. The signal is faint but is worthy of attention.

In a previous post I mentioned that I would patiently wait for silver to test its trend line before adding to my positions. The rendezvous took place today, but after seeing oil fail its bull market trend line a couple days ago, I hesitate to pull the trigger on any commodity-related purchase. Of course, I do believe that as recession oozes down over this economy, monetary commodities should diverge from industrial ones and move higher in anticipation of aggressive rate cuts. However, what I think should happen is of little concern to the market. In order to fortify my confidence in silver at this point, I would like to give it a few days to prove it can hold and reverse off of its trend line.

Likewise, Silver Wheaton tested its trend line, which also serves as the lower bound of an ascending triangle.

stock chart

This potential setup was mentioned here on December 18, and is now demanding attention. I will require of SLW the same proof of strength mentioned above for silver.

Equities moved sharply lower from the get-go... likely a similar reaction to the employment report suffered by metals... and stayed down. The best prices were put in at the open. While the NDX managed to mitigate some of its losses, the SPX continued sinking and took out Wednesday's low. I believe this failure is an important technical point, and we can now reasonably expect the S&P 500 to move toward a test of its moving average.

stock chart

In fact those who peruse my charts knows that I believe the MA has been in play since the end of December.

Other movers of note include Research in Motion, which followed through on yesterday's surge higher, and Motorola, which plunged 8% on a poor earnings report. Danger, Will Robinson. Motorola's earnings may portend an ugly season ahead! Of course, is it any surprise that Motorola is suffering? The incessant television ads offering Razr phones "buy one, get three free" is no small clue.

Disclosure: None


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