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September 20, 2009

Worst Case Scenarios

The bad news for precious metals bulls, particularly those who read this blog, is that the dollar is being obstinate about giving us our 3-day panic sell which was supposed to spike silver up to $19 or so and give us an easy way to trade a consolidation rally in the buck. The good news, I suppose, is that the buck is acting as if it will keep stair-stepping its way lower. Such action will keep PMs moving higher, but in choppier fashion. I haven't eliminated the idea of the panic/consolidation outcome, but we should consider that the buck may either: 1) sneak into its concolidation in stealth mode or 2) put in enough of a bounce here to scare weak hands out of their positions.

In case scenario #2 is unfolding, I'd like to consider some worst case scenarios for mining shares and the metals. Let's have a look:

mining shares

silver chart

gold chart

I don't have a lot of confidence these worst-case scenarios will come to pass, but it is always wise to consider the possibilites. Of course, the true worst-case is that we're simply wrong about the PM bull, but in that case, we deserve to lose our money!

As for stocks, the S&P 500 is now well above the 75WMA we have been watching for several weeks. I see no reason to take any sibstantial short bets unless the SPX loses this MA and/or the 65DMA. As for long bets, I'll just stick with the miners.


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