Trend ain't our friend

Guest post by GM Jenkins

I've drawn a set of parallel trend lines on the 8 year log chart of silver, representing a growth rate of about 27% per year. The lines seem to capture silver's movement really well for the 5 years before it dropped off a cliff in 2008.

As I recently pointed out, silver's latest explosion (9/10 - 5/11) simply made up for the (manipulated?) events of Fall 2008, pulling silver back into its now extended exponential trend up.

That's the good news. The bad news is, silver touched the red dotted trend line in April 2004, April 2006, April 2008, and now in April 2011. Every time it has touched the red dotted trend line, it has fallen back down to the brown dotted trend-line before making its way back to the red.

Don't shoot the messenger, but if this pattern holds, we should probably expect silver to touch the blue/purple lines soon, and snake around the 30's for awhile...

*that is, unless the COMEX is about to default, SLV plummet to 0, and JPM go bankrupt, in which case none of this shit matters.


Yukon Cornelius said...

You might be right, but I still think we're going to get one last May pop before we drop into the real funk in June/July. They might be front-running the end of QE2 right now so I don't think anyone can say with any real certainty.

All I know is I am buying here and I will be increasing my buying all the way down with the serious buying starting at $36.

One interesting thought I had earlier which I haven't shared until now (breaking news on Screwtape Files!) is ponder upon the effects a Yuan reevaluation would have at this time? Say over this weekend? Imagine if you knew it was coming and what you could do with the commodities market where it stands today - especially silver.

Intriguing isn't it?

Louis Cypher said...

Looks like some more margin hikes. Smells like desperation. Hui is doing well for a change. I guess the Sprott interview may have been the signal.

Robert Leroy Parker said...

The gold versus paper blogspot has done a similar log silver chart. His trendline is positioned slightly different than yours. Chart

Here is his analysis with relation to the gold chart. Gold versus Paper blogspot

This was one of my favorite gold blogs until he stopped posting last year. He just started up again. Mostly charting, but folks may enjoy it.

Louis Cypher said...

That particular rumor started with a blog on the WSJ. He was suggesting last week if I remember correctly. I don't remember the authors name though.
I have a feeling though it's not far away as they look after their own. They have opened branches in the US to allow everyone who wants to put their money in Yuan.

Robert Leroy Parker said...

I should mention his analysis was done over the weekend before the crash.

Louis Cypher said...

Good site. Definitely add it to the bookmark worthy. Still noodling the Yuan revaluation and what exactly a few million degenerate Chinese gamblers would do with their increased buying power in foreign markets. Hmmm, I wonder what they would buy besides iPhones? :)

Yes, they really are very conscious of their image over there as much as we are here.

GM Jenkins said...

Thanks for your comments guys. I used to think technical analysis was akin to tarot cards and astrology. Now that I've spent some time messing around with charts and stuff, I'm sure technical analysis is akin to tarot cards and and astrology, but it's still fun. I think the take-home from my chart here is mostly good: as of today, it's as if the silver crash of 2008 never happened; silver might as well have been moving up as it had for the five years before 2008.

The idea that it has a ways to drop because that's how it acted in 2004, 2006, 2008 is less compelling, but my guess is that it won't be moving parabolically up through 50 any time soon, since th elatest parabolic movement seems to have done its job, taking silver back to its original trend line, and expended itself.

But then, yeah, things like hints of yuan revaluation and the unhinged behavior behind the margin hikes makes me wonder if all technical analysis shouldnt be thrown out the window pretty sooon.

Robert Leroy Parker said...


Are chinese corporate margins not so razor thin that a revaluation would be overwhelmingly deflationary?

Louis Cypher said...

That's a big question and worthy of an essay and some serious research. From what I have seen the margins are far from razor thin. I can only speak to software and related.

So let me just tell you what IS right now from anecdotal evidence.

Prices in everything and wages are pushing the people who can out further from the cities. They are losing their cheap labor advantage anyway.
So the govt is desperate to get their internal markets up and running.

The bigger issue for them is food inflation.
The govt blames hoarding and speculation and have threatened people who are found to be hoarding. If food runs away from them they are in serious doodoo. There is speculation in some foods and not others from what I have seen.

The govt is doing their best to develop a self sustaining internal market. Tough to turn savers with memories of recent poverty into consumers.

Long story short those who can get out of the cities and set up shop further and further out where they basically get paid to set up shop via all sorts of incentives and dirt cheap labor. Some of the guys I have dealt with started out in Shanghai etc. and have now moved right out to the borders of the country because they are cheap.

They all talk about the collective but when it comes to a buck they would push their grandmother down the stairs.

There are a couple of essays on the site of my impressions etc. from a business travelers perspective and tourist perspective.

Robert Leroy Parker said...

Transparency and communism don't work so well together it seems.