3 Reasons For Silver.

Although gold continues to grab most of the attention in the precious metal world, its less glamorous sister, silver, may be more appealing, and for good reason.

First off, silver has many more uses than gold. It's used for numerous industrial purposes and nearly 55% of total silver fabrication is used for industrial purposes. Silver is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards, as well as in the lining of refrigerators, for food storage containers, and for water purification. Additionally, the metal can be used as an antimicrobial to fight bacteria and as an antiseptic to treat fungal infections. Silver’s industrial uses even span to the solar energy industry. As economies around the world continue to expand, the industrial demand for silver will likely follow.

Another force that's likely to support silver is that valuations appear to be strong. In a nutshell, silver is cheap and depressed on a historical basis, when compared to its sister metal, gold. Gold is trading much higher than its long-term ratio of 16 times the price of silver, indicating that there's plenty of room for silver prices to run. Additionally, silver is nearly 70% below its all-time high witnessed in 1980 and well below its near-term high of $21 per ounce seen in 2008.

Lastly, diminishing supply is likely to bolster the metal. According to a study conducted by the United States Geological Survey, silver is nearly twice as rare as gold in the long term because it's not recycled at the same rates as gold and at current consumption rates all of the silver that's in the Earth’s crust will diminish away in the next 25 years.

When investing Silver ETFs, it's important to consider factors that could potentially hinder the price of silver like an unexpected surge in the dollar. A good to way to protect against these factors, as well as against the inherent risks involved with investing in equities, is through the use and implementation of an exit strategy that triggers price points at which an upward trend in gold could potentially be coming to an end.

Talking About S&P 840.

With the magical 1040 level being tested in the S&P 500, many technicians and talking heads are looking at this level as the final step before Armageddon. Running through the various newsletters and blogs, a common theme seems to be that if 1040 doesn't hold, then the 960 level is the last stand before traders get a one-way ticket to test the March 2009 lows of 666. From that point, it's death and destruction to the American economic system as we know it, or so the naysayers would have you believe.

From my perch,I agree that 1040 holds a lot of psychological weight. If a break of this level holds, it should turn many market participants fully bearish and cause a downward cascade that will be difficult to stop. The proverbial line in the sand has been drawn,and the S&P is clawing and scraping at this very moment to remain with its head above this low water mark.

Trying to stay two steps ahead of the action, I roll out the weekly charts to anticipate the next areas of support. I've marked several areas on the weekly chart above that have been battlegrounds in the past. No, these aren't Fibonacci retracements but merely areas where the action stalled as traders, investors, and mutual funds jockeyed for position.

While I've included all of the usual suspects on the weekly chart, it's my belief that the 840 area is often overlooked by the majority of market participants as a battleground. In fact, just looking at the weekly chart, there's not enough information to even cause a trader to pause and consider that level. So let’s roll into the daily charts of that time period and see what we can make of this potential support.

On the daily chart of September 2008 through July 2009. All congestion are right around the 840 level. The truly interesting aspect of this to me is that 840 didn't offer a crisp “one and done” reversal point but instead found itself in the middle of the action for weeks upon weeks. Throughout October 2008, 840 was hit and held several days. Of course, as is the case at the start of any new support levels, there was no way for a trader to even begin to imagine the significance of this level. And even as 2008 came to a close, 840 was bantered around on both sides but was only just beginning to firm up as a key level.

The first two months of 2009 would have been the first time traders might have taken note of how much air time 840 was receiving. Prices seemed to be drawn back to this area like sheet metal to a magnet. When selling pressure resumed and the S&P hit its eventual bottom at 666, 840 was the last area of consolidation. In textbook fashion, 840 once again was an area of consternation and tight play as the S&P bounced off the lows. From there, there was no turning back as the S&P raced to 1200.

Now turn your eyes back to the weekly chart for a bigger-picture view. 840 and 960 may never come into play as the markets could catch a second wind and be off like a racehorse. But if 1040 does relinquish control to the bears, then all eyes will be fixated on the next levels of support. It's my opinion that 840 should be added to the discussion, and that 666 isn't inevitable as we struggle for footing. 960 to 666 is a long step off the end of the plank, but my bet is on 840 being a safety net. So yes, I’d be a buyer of the S&P… at 840.

Momentum Of GOLD.

The True Strength Index is a low lag-time momentum indicator that can be used at www.FreeStockCharts.com. Generally, it's bullish when the indicator is above zero and bearish when it's below zero. As the indicator is very sensitive and responsive to movements of price, it can be effectively interpreted for buy and sell decisions.

SPDR Gold Shares (GLD) is making new all-time highs last night. So let’s see what the momentum indicator is telling us. Above is a chart of the hourly price action of GLD.

A couple of things are obvious. First, the price performance of GLD has been steadily accelerating for the past six trading sessions. This is significant because it means that as the acceleration begins to slow, price could still continue higher -- but climbing at a slower rate. As the current reading is .45, which is relatively high, I think it's likely that gold will continue to rise while the TSI momentum indicator will begin to diverge (trend lower).

There are a couple of techniques for making a sell decision with this setup. One could simply wait for the TSI indicator to finally cross below zero -- which will be some time from now, or sell when the indicator makes it first divergence (a lower high if price is still going higher). A third technique, and one that you should be forewarned of whipsaw, is to buy/sell when the indicator crosses the moving average (purple line).

For the past four months, Market Vectors Gold Miners ETF (GDX) has been advancing in a pattern of three momentum waves followed by a correction. While there's no guarantee that this particular pattern will continue, it's encouraging to note that we've recently been through both a correction and a consolidation phase and are just beginning a new first wave.

It would surprise me if GDX doesn't ultimately take out the previous all-time high of $54.63. Presently, we observe open gaps in daily trade that may be revisited on a future date. But for now, this looks like a powerful first wave that should logically be followed by others.

Italy, You Are NEXT !

A combination of massive debt, a lack of competitiveness, and a feeble outlook on economic growth may be the reasons that Italy will be the next eurozone nation to fall.

On the debt forefront, Italy’s debt is expected to balloon up to 117.8% of GDP by next year. Although its debt isn't rising as rapidly as that of Spain or Ireland, it's still at an alarming rate. To further add to the nation’s problems, yield spreads between 10-Year Italian and German government bonds widened to 1.58 percentage points, wider than before the bailout rescue plan was put in place. The widening in this yield spread means that investors judge it riskier to buy the debt of Italy than that of Germany and implies that investors aren't confident in the economic health of Italy.

Additionally, credit default swaps on Italian government debt are at record levels, with $10 million of insurance costing nearly $248,000 per year, indicating that elevated risk is present. Lastly, Italy has nearly €1.5 trillion of debt outstanding, making it the third largest debt market in the world behind the US and Japan.

To put Italy’s debt problems into perspective, at current debt levels and interest rates, the nation must spend nearly 4.5% of its GDP per year just to cover interest payments and will likely continue to increase.

To make things even more challenging for Italy, the nation’s competitiveness has been deteriorating. A study conducted by the European Commission concluded that over a 10-year time span from 1998 to 2008, exports of goods and services grew more slowly in Italy than any other country that was a member of the European Union. This decline in competitiveness, caused primarily by falling factory production, has further led to tepid economic growth. With no real policies and procedures to ameliorate this predicament, Italy’s economic growth future appears grim.

In a nutshell, unless Italy’s debt issues are resolved and it figures out a way to boost productivity, its outlook remains bleak.

Are You Bleeding With Passion?

"To everything there is a season and a time for every purpose under the heavens..."
-- Ecclesiastes 3:1-8
Got this from reading some of the Gann books once.

Seasons come and go, markets change and evolve, but human behavior hardwired into the brain hasn't really changed much since the time of the Neanderthal.

Every one of you reading this wants to make money in the markets. The principles are simple, but not easy: Take personal responsibility for your trades, execute ruthlessly, cut losses quickly, stay healthy in body, mind and spirit, practice good risk management, plan your trade and trade your plan, master your emotions, practice patience, do more of what's working, and take profits on a regular basis.

This sounds easy, but the majority of you struggle daily to do these things. You search continually for something or someone -- an indicator, a method, a newsletter, a guru, Grand Pine. You're looking for answers in all the wrong places.

There is one immutable fact that underlies all successful trading: The answer is within you. It's not out there somewhere. It's about your brain and how, not what you think. Traders, with few exceptions, are made not born. Anyone, given the passion, determination, and willingness to work hard, lose, fall down, and keep getting up, can learn to trade successfully.

How? You must believe totally that you are called to trading, that it is the one thing about which you are completely passionate and that you are willing to forego everything else in order to succeed.

I have stopped counting the number of times people laughed and ridiculed me when I talk about commitment to trading - this includes my mom. You know you're committed when something epiphanous happens to you. One of the definitions of epiphany is a sudden, intuitive perception or insight into the reality or essential meaning of something.

I have had several people tell me that their trading epiphany came in the form of actually feeling the earth move. A Carole King moment for those of you old enough to remember! Are you laughing yet?

Okay. Now that the earth is moving, the real work begins. You must learn to think in probabilities and entrain the qualities of being counterintuitive and peripatetic. You must become a chameleon, a great actor and acrobat on the largest and most intimidating stage in the world. Most of all, you must be absolutely determined and passionate about it. If you can take these steps -- slowly and one at a time -- you have a chance to make it.

Is 2010 the year you'll find the courage to follow your passion and do what it takes to become a successful trader? If so, then see yourself as the most brilliant firework lighting up the sky. Settle for nothing less than your personal best. Let 2010 be your year to shine like the brightest star in the universe. Is this your time? If now not, then when? After all, we are living in the greatest time of all times!

"Courage is more exhilarating than fear, and in the long run it is easier. We do not have to become heroes overnight... just one step at a time, meeting each new thing that comes up, seeing it not as dreadful as it appeared, and discovering we have the strength to stare it down..."
- Eleanor Roosevelt

Will The Market Rollover Again?

I’ve been in the markets for 25 years and I’ve never seen anything like this. And there’s a reason: there’s never been anything quite like this.

The price action both up and down has been astonishing.

Market is doing a good job at getting traders used to the idea that 30 handles on the S&P is the “New Normal” -- that a 30-handlebar bike can be ridden. You don’t ride this kind of risk any more than a frog fantasizes he's "adapting" in a pot of water where the heat gets turned up and up until it’s too late.

On the other end of the spectrum, hope and holder investors who haven’t been driven out of the market by a decade of financial schizophrenia convince themselves they're in it for the long term. The truth is, if you lose your money in the short term, there is no long term.

On Wednesday the market reversed to sell off 25 S&P points on a rumor that China was "reconsidering" its eurozone debt. Reconsidering may be the mother of all euphemisms in this particular case. Then on Thursday the S&P gapped up 30 handles on plausible deniability of that rumor. China certainly figures in lately, doesn’t it? Seems like China carries a big stick, but isn't speaking especially softly.

This is because the two biggest currencies in the world are dependent on the kindness of strangers. Money makes power. When you depend on the kindness of strangers to keep the wolves of debt from your door, it's at the peril of becoming ineffectual. Is this the case currently with the US in our talks with China regarding North Korea and Iran? Does America risk becoming a paper eagle at a time when former paper tigers have sharpened their geopolitical teeth and are threatening more than just paper cuts? My, what big teeth you have, China.

When a nation is indebted beyond the scope of its own control, it loses manifest destiny. This is currently the spectacle in Europe. When multiple sovereigns lose the right to rule, there's systemic risk. Particularly since fiat finance is faith-based.

Volatility precedes price and volatility has begun to cast a long and ragged shadow over the land.

The market may mask risk with the phantom of opportunity, but when the market trades "in the air" and gaps to where it's going from one day to the next, there's more danger than opportunity. The notion that the Chinese word for crisis represents danger and opportunity is fallacious. Even in the land where communism has co-opted capitalism, crisis is crisis. Sometimes risk is just risk. As the financial markets presumably learned over the last few years of crisis, sometimes risk is just risk and can’t be hedged away. Danger is as danger does.

I say financial markets presumably learned that risk can’t always be hedged away because going into the April top, once again, the VIX was priced as if stocks were discounting the hereafter. It was as if Mr. Market looked risk straight in the eye, saying, “We don’t need no stinkin’ insurance.”

So what was so good about Wednesday morning? What happened that the market should explode up 30 S&P points overnight? Nothing fundamentally bullish happened. The issues haven’t changed. The only "good" thing is that China intentionally or otherwise showed how they can move world markets, and that’s a bad thing.

Going into the down draft on Wednesday, I sent out an alert wherein I reckoned that 1066 should be a bullish inflection point. Why? The pattern suggested that the S&P bounce had an agenda with higher prices over to perhaps a gap near 1115 on a backtest of the 200-day moving average. Since the S&P was rejected on Wednesday from a test of 1090 and the first move up was 50 S&P points, then from what level would an ABC or two-step measured move play out? A symmetrical 50-point rally from 1065 to 1066 would satisfy such a pattern. To wit, the S&P stopped in its tracks at 1065/1066on the sharp sell-off into Wednesday’s close.

Thursday’s 30-point gap up mirrored the 30-point gap down on Monday. What a week. Shorts were on the hook, bulls were left at the station as the train took off. The shorts had already taken the heat on the open and there was little to do other than observe the behavior of the first little morning pullback which proved to be meager. Some shorts likely even faded the open. When the market held up, the stage was set for a trajectory into the close as the full moon yesterday magnetized the market to a close at the high of the day. The S&P was drawn to a test of its 200-day moving average right on the bell. The notion of alternation suggested an ABC-type pattern if a multi-day rally was going to play out with a stab at 1115ish in contrast to the line drive, straight up move off the flash dance May 6 crash lows.

With the futures closing on their high without the "arbs" getting out, it suggests an up open before they cut and run, or at least hedging in front of the long weekend. Short-side scalps today set up better than long-side tries with the S&P up a quick 180 degrees from the 1040 low and down 180 degrees from the last swing high at 1174. The day may just go flat and choppy in a narrow range after yesterday’s thrust.

Basically, the market did as predicted, turning down the Quarterly Swing Chart on a break of the February low and then snapping back powerfully in keeping with the Principle of Reflexivity when a big wheel of time turns.

While the market is closed on Monday, foreign markets are open and you never know if the mice could play while the cat's away and the "rally is raided." Be that as it may, the Weekly Swing Chart should turn up early next week on trade above whatever this week’s high proves to be. There are a tight cluster of turning points due in the first week of June that are reminiscent of the cluster of time/price harmonics that called the April turn.

For example, one of those harmonics is that June 4 is 666 trading days from the all-time high on October 11, 2007; 666, of course, was the price of the S&P at the March ’09 low. Moreover, 666 vibrates or aligns with the date of June 6. In addition, the 2007 to 2009 bear market decline was 512 days. The "center" of the decline or the 50% point is level of the January 6, 2009 high near 940/950; 512 days from this "center" gives June 6, 2010.

With a consensus in place that the market will extend on the heels of a double bottom that's been carved out in the S&P, will the SPY backtest its 50-period moving average near 109 before a stab higher leaving a third step up between 1107 and 1120? Why do I say 1107? The range of the last swing from 1174 to 1040 is 134 points. One-half that range is 67 points, giving 1107. It's interesting that this vibration ties to the 666/667 low.

Conclusion: I don’t think I can ever remember a time where so many traders have pointed to a particular pattern, an inverse head & shoulders (bullish) pattern in the S&P which presumably projects to 1140. It may, of course, play out that way, but typically what's obvious in the markets is obviously not worth knowing. At the same time, I hear few voices suggesting that this current move up could be a "droop" right shoulder, shy of 1121, which is the mid-point of the prior bear market. I've been focusing on the first week of June since the top was confirmed as a possible low. Now it appears a three-step pattern will play out to the upside into next week. The bottom line is another lower high on the S&P will trace out a potentially ominous third lower high. Often times waterfall moves come from third lower highs.

As it happens, analogue from the waterfalls in 1929 and 1987 saw the market make lower highs around 40 calendar days from their peaks just before crashing. If the "double bottom" or neck line at 1040 breaks, the projection is to 860ish S&P. If may not play out this way of course, but given the cyclical, financial, political, and geopolitical backdrop, extreme caution is warranted at least until this period passes to see what we’re dealing with.

Strategy: As offered in mid-May, if the S&P is above 1100 and especially 1120 by the end of May it may compel a squeeze by money managers forced to chase stocks toward quarter end. However, if the market rolls over again, it's just as likely that these same money managers panic in front of quarter end, rather than lose all their gains from March ’09.

Capital Markets, Are The Enemy of the State.

Governments have tried to hold back the forces of a primary bear market.

The powers that be planned to do “whatever it took” to prevent the analogue from the five to six month bounce into April 1930 playing out to prevent an absolute loss of confidence.

But absolute power corrupts absolutely free markets.

In so doing, the market was stretched and the spring and elasticity has snapped.

It’s not nice to fool Mother Nature.

The bear has been made angry and is exacting his revenge.

Consequently, downside may be more swift and quicker that one could contemplate.

While the 2008 crisis unfolded like a slow-motion train wreck, the rule of alternation implies that this decline may start out like a train wreck, with a crescendo and climatic decline at the beginning of the leg down rather than a capitulation at the end.

A waterfall from the top rather than a climatic catharsis at the tail end.

And, you're correct: Crashes don’t occur off highs. But April wasn't a high, but a lower high in the larger scheme of things.

Below the "flash crash" lows, it won’t be a flash in the pan, and panic would prevail.

Note that the New York Composite Index has just violated its May 6 low.

Capitalism is fine until you run out of other people's debt.

Enemy of the sated? Enema of the state?

North Korea, Thailand,the tenfold heavier Icelandic sister volcano rumbling.

Mood makes the market.