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October 14, 2009

Voids and Vertical Moves

A few weeks ago I posed the following scenario: the dollar was completing a 5th subwave of a major wave lower. The move would end in typical fashion... with several consecutive panic days. In conjunction with the panic, silver would break out and fill a void of resistance up to the $19.50 pivot. Following the panic, the dollar would enter a labored corrective rally while precious metals would retrace mildly or just trade sideways. At the conclusion of the dollar's panic, the DX would commence a new primary bear wave which would enduce wild magic in the PM charts, sending them skyward. My tentative expectations were for $1500+ gold and $30 silver.

Then three weeks ago, the DX bounced off a significant pivot near 76 and formed a swing low. It seemed as if the interim, consolidative rally had arrived without the usual panic prelude. However, the swing was reversed along with yet another swing low formed with a bounce off the 76 pivot last Friday. The dollar index has now solidly broken the pivot, and one has to expect the minimum downside journey to reach the next pivot at 74 or perhaps the all-time low set last year below 72.

We can judge which pivot will lend support simply by watching for which level is tagged at the tail end of panic. As for silver, the $19.50 level seems as easy to reach as second base on a passed ball.

silver chart

If the DX slips to last year's low, I doubt $19.50 will contain silver's price. We'd be looking at challenging the high at $21 and change. Given my expectation for silver to flirt with $30 by spring, testing the highs before taking a breather makes sense as it still leaves a 50% move for the vertical stage.

We're also looking at a potential vertical move in oil. The chart is sans resistance up to $90.

oil chart

Speaking of voids, the talking heads on CNBC can't applaud Bernanke enough for getting the Dow 30 back over the 10,000. I wonder what they will think of him the next time they pay $4 for a gallon of gas.

As for stocks, it seems reasonable to expect them to continue higher until we see the expected panic sell in the buck. When the dollar eventually consolidates, however, I anticipate stocks to get hit significantly harder than precious metals or commodities in general. If I am prudent enough to recognize the warning signs, I intend to short stocks, not only to take advantage of the move, but to hedge my long-term precious metals holdings.

 

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