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January 30, 2006

Spikey

Silver continued to spike today without the company of gold. The yellow metal gained about a percent, but still has not set a new high since January 19. Although the 19th is a mere 7 business days passed, keep in mind that silver has spurted 10% in that time. Either silver is going through a blow-off that will come crashing back down, or gold will soon play catch-up and burst into $600 territory. Regular readers know that I strongly believe in the latter scenario since I've been expecting a mega-spike in metals prices since mid-December.

From a psychological standpoint, we are ripe for the spike. In December I wrote that those who have missed the metals bull market thus far will be looking for an entry point. Since mid-December, they have been waiting for a pull-back that has not come. You may ask that if so many are waiting to buy, where is the demand coming from? I believe that it's not so much a lack of buyers driving metals up right now as a paucity of sellers. As metals continue to run, all those latecomers will finally capitulate, not wanting to miss the bandwagon. Their rush will create an enormous buy-side imbalance in the face of the scarcity of sellers, and we will get the spike.

Finally, professional traders... those sitting around patiently with huge long positions, waiting for this very scenario... will start pulling their profits off the table. We will eventually get another spike... downward... to punish all those latecomers. Those who trade well will then be presented with a beautiful buying opportunity. Naturally, all this conjecture is little more than an educated guess, but that's how I see things playing out in the near term.

Oil also tacked on nearly a percent today. The latest move in energy has caught me sitting on my hands. Although I anticipated a big move at the beginning of January (and wrote about it here), I admitted that I didn't know in which direction. My outlook for 2006 calls for energy, barring any major geopolitical crisis, to not be as stellar a performer as last year. The basis for that expectation is my other expectation of a large recession in the U.S. Last quarter's GDP number lends credence to such an expectation, assuming of course that the GDP number itself can be trusted. Although it is frustrating to watch the energy sector go up without me, I prefer to wait for a situation I understand better before I make any moves.

Equities were almost a non-event today, and most traders... even those on the floor... would have spent their time better simply goofing off (at least some other sort of goofing off than what they do on the floor). A couple small notes of interest include Google, which slid $7 and suddenly has a very weak-looking chart, and Apple, which reversed part of its two-week slide with a healthy $3 gain. If Apple makes a run here, it will be very important to note whether the shares can regain the high. If a failed rally ensues, I will look to short the stock.

Disclosure: None

 

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