Is the Silver Correction Over?

by David Galland

Dear Reader,

Despite not intending to be at the helm today, I found a bit of extra time lying around this morning, and so here I am.

In yesterday’s missive, we kicked off with what I hope were some useful thoughts on the recent correction in all things, with a focus on gold. And I promised to provide thoughts along a similar line today for silver, which I do just below. Then, following our look at silver, we present an interesting article by Vedran Vuk on a frightening new trend (starting in the UK, of course) to try to build legislation around the “science” of happiness.

The first time this latest bit of nonsense came to my attention was in a TED presentation in which a social scientist presented his data, “proving” that any correlation between human happiness and annual income ended at $65,000. In other words, if you make less than $65,000 annually, you’ll generally be more happy if you make more money. But once you make $65,000, there is no noticeable improvement in your happiness if you make more… say, $75,000 or $100,000.

At the end of the TED presentation, the oh-so-smooth moderator asked a follow-up question along the lines of, “Fascinating. Is there a move to integrate these findings into legislation?”

As you, dear readers, are of above-average intelligence, you have probably already figured out where this is going… namely using happiness research as cover for more progressive redistribution of wealth. We’ll get to Vedran’s report on this disingenuous and wealth-destroying trend momentarily. But first, our look at silver.

Yesterday we kicked things off with a guest commentary from technical analyst Steve Belmont of the RMB Group. Along the same lines, we begin today with the observations of trader Brian Pettigrew, writing from the comfort of his nest in Thailand.

Here’s Brian…

    Well done on your comments regarding the correction – I like to think that the word “retracement” is perhaps the better word – reflecting its natural occurrence rather than the need to fix something that is incorrect.

    Anyway, good idea to give some perspective on the relative depth of these things – if only that they are so hard to successfully “trade.”

    Having spent a few more hours over your report, I would like to offer you something just a little more definitive regarding the silver retracement – but again in the light of statistical probabilities rather than “questionable” TA interpretation.

    The silver 2hr chart below suggests a strong statistical probability that silver bottomed on Tuesday/Wednesday.

    Note the following:

    • Silver has retraced Fibonacci 62% (purple line) of the recent short-term run-up
    • Price has broken out of a wedge pattern to the upside – breakouts from wedge patterns are statistically quite reliable indicators
    • Price bounced convincingly off the short-term support line (blue)

    But also note: the indicators (below) suggest that the “recovery” is heading into overbought territory – perhaps reflecting the velocity of the bounce – but this is not particularly significant for forecasting purposes.

    silver-2010-11-18

    Like you, I increased some of my silver holdings on the strength of these probabilities.

    Note also that some silver stocks came back to fill their earlier gaps up – also a good sign. FR is a good example.

    Gold has also just broken out of its wedge pattern – but there is yet less statistically significant information to confirm a solid “breakout.”

    XAUUSD-2010-11-18

    Again, thanks for your dailies – I always look forward to them, as I do to Ed Steer’s reports.

    Planning a trip to Argentina next year – but happy as hell here in a country village bathed every night by spectacular sunsets over the not-too-distant Burmese mountains.

    Brian Pettigrew – (far from the madding crowd)

David again… still with you, though writing a bit more energetically, as I need to finish preparing for my strip ‘n trip to Washington, D.C. in a few hours.

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