Sunday pre-game 10/2/2011

I'm so bearish on the metals this week that I'm becoming bulish.

Starting with commodities in general, I showed a few days ago how a very important level of support was destroyed on the CCI index. Well, the CRB below is no better. Does anyone expect to see it shoot right back up into the orange trend channel? I suppose if some kind of unexpected quantitative easing was announced tomorrow it would, but barring that, it looks headed at least down another 5% to the grey line. That wouldn't be so bad, but if that support fails, there's very left in the way of a 2008 type tanking.

Of course, gold and silver could go up while the CCI and the CRB continue to fall or move sideways. So how do those charts look?

Silver has bee able to stay mostly above the dotted grey center line in the new horizontal channel I added last week.

I still think we're gonna need several weeks above that grey line before anyone can even mention $36 silver again (and the $36 level should be strong resistance in itself). I think a bounce up is due (e.g. the RSI is under 30), but I expect heavy selling into any rally at this point. If $26 should be tested and break, the last line of support is $24, or the entire 2010-2011 explosion will be expunged. However, the recent news that JPM et al. are covering shorts at an uncanny rate is a sign that we probably won't go below $22-24. I for one would be loading the boat at those prices.

On the old weekly chart, note how the 34- week moving average (pink), which had been such reliable support (most recently in June), was as effective as the Maginot line. Also, note that the 55-week moving average (green), which had been back-up support during the few times the 34-week didn't hold, has now become resistance (at $33.32). A drop to $25 in the next month looks probable on this chart, does it not?

Here's the same trend channel on the long-term daily silver chart, with the same ominous aspect.

Even the long term silver chart with a more conservative trend channel looks poised for further downside action; the lower blue trend line looks to be on the verge of being broken emphatically. But let's keep the big picture in mind: even a 2008-like collapse down to $22 would mean that, only 3 years after the last financial crisis, silver's almost unthinkable low would still be higher than its 2008 "bubble" high.

As i've been saying, gold looks a lot better than silver so far. Note how well the blue line I fit to the 144-day moving average has served as support. Note also how the 144-day moving average appears to have been effective support last week. A lot of us were expecting that in the summer.

The lower black line of the trend channel on the weekly chart is still in tact:

As long as these levels hold, we are doing fine. However, I predict a weekly *close* at the lower black line, and perhaps a daily close some time in the next few weeks at the 144 or 150-day moving average.

Finally, looks to me like the gold:silver ratio is headed up to touch the upper blue trend line, at ~60. Again, keep the big picture in mind. There is a wide, but very steady 10 year decline in this ratio. I would not go selling physical silver any time soon.