Silver, To Buy or Not to Buy

Reading through the weekend articles and reports on the recent rally in the Precious Metals, I noted a few things.

As investors, we look constantly towards the fundamentals for choosing what to buy, but lean towards technical analysis to know when to buy.

Fundamentally everything is perfectly in check. Silver supply still seems in decline in regard to demand, many banks and developed nations are still skeptical about gold’s power and traders still believe that commodities are risky.

Technically however, silver and gold seem very strong and are expected to continue strongly breaking through $15. Once that is done there is will most probably be a mad blowoff sending the metal to the possible 20s.

This in result will most end up in a sharp sell off and maybe even a strong overall commodities decline. This is where many investors will be looking for as their last buying opportunity to buy both metals at such prices.

We saw this in the early 70s. After Gold staged a solid uptrend it then fell overall, wiping out most gains.

Alan Greenspan has also mentioned that the U.S. may head into a recession towards the end of 2007. This is most probably when we can expect this “bottom” to take place. Although I previously expected the boom and bust to begin in September, it may have already begun.

Investors are thus warned not to buy-and-hold from such prices. Silver will go higher but there is solid reason to speculate that these higher will be met with lower than current prices. Many short-commercials will then buy-to-cover creating a permanent bottom that we may never see again.

Traders on the other hand may find it quite profitable to play this rally.

Just remember to sell in time.

Speculative Trading

We bought back our Silver and Gold Calls. Thus our initial trades remains intact. We initially sold out waiting to see if the metals would trend lower and create a more sound buying point which they did, but needless to say they bounced back too fast. Pressure on Iran may also be pushing the metals higher.

Oil and Natural Gas Calls both remain in bullish mode gaining on the oversold conditions primarily from speculation of a continued mild winter as well as reports of lower supply.

Dow and Nasdaq Puts. The markets have been struggling to make any new ground. Our positions remain intact awaiting a significant down day for both the Dow and the Nasdaq.
We would expect the Nasdaq to fall sharper than the stocks of standard issues due to the nature of the businesses as well as the recent speculation regarding Tech stocks.

Lumber Calls have been our choice of play in commodities as it struck new lows last month.

Oil +18%
Natural Gas +24%
Silver +11%
Gold
+7%
Dow +0.5%
Nasdaq -8%.

Lumber +6%

The Investor Sentiment Trading Fund +8.5% since January 14.

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