Back on the 15th, I tightened my stops pretty tight after predicting a local top in silver, and prices started dropping soon afterward. That call turned out to be pretty good, getting me out of SLV within a few percentage points of what turned out to be the top.

I’m much more nervous about predicting the bottom than I was the top. The problem is that my (small amount of) experience with precious metals is that once they turn the corner and head back up, they do so sharply. I’m afraid that will make it difficult to be sure the bottom is in without missing the initial breakout. However, we can’t let fear guide our investing decisions, so we have to take the information we have and make the best prediction we can. Once we see the numbers, we can compare them to the price behavior and see if we see an opportunity to get back in.

…And get back in we should. The fundamentals of metal are still very favorable. The world economies remain weak, and many countries are debasing their currency. The stock market is highly overvalued, and metals remain historically undervalued compared to stocks. The weekly chart shows we are still roughly within a rising trend channel and MACD is still positive. I’m fairly certain we are still in a secular bull market for precious metals.

On Jan 20th, there was a pretty clear breakaway gap to start the down-trend. On the 24th, there is what looks like a continuation gap. Measuring from the breakout to the continuation gap and projecting down, we get a target of 15.75. The previous corrections in March and June were 15% and 20%, respectively. A 15% correction from the Dec 2nd high of ~$19 would put us at $16.15. 20% would put us at $15.20. That makes 15.75 seem like a reasonable target. It seems the current price of 16.26 likely has a little further to fall. Support is strong at $16 from the Sept and Oct bottoms and the June top.

The RSI is currently at 50. During the previous 2 corrections, it broke below 50 briefly before turning up. Yesterday the price went down on solid volume, but closed higher than it opened. Today it went down on low volume. Both seem to indicate confusing in the trend. The MACD histogram is still falling, so downward momentum isn’t slowing just yet. The STO has hit overbought territory and is bottoming out, so we do need to be on-guard for a change in momentum.

The dollar is still rallying, which will continue to pressure everything priced in dollars. Looking at the Kitco gold index, the index has started pulling away from the dollar value, so gold (and likely silver with it) has started to have some “price-stickyness” and is not falling in price as quickly as the dollar is gaining in value. This equates to a net gain in value for metals, even as the price drops. That should certainly give metals some inertia upward if the dollar heads back down, but it doesn’t appear to be a big enough departure for metals to rally alongside the dollar yet.

Speaking of gold, there are a few clues there as well. STO has bottomed in oversold territory and the slope of the MACD histogram is starting to turn up. GLD moved pretty high in intra-day trading today, despite closing down on relatively normal volume. This is a sign the bulls could be gaining power.

The dollar rally looks healthy. Like I said, I don’t think metals have the power to rally alongside the dollar right now, so the turning-point of the dollar will be a critical point for metal as well. The MACD is above its trigger line, and the slope of the MACD histogram is weakly up but steady. Looking at the UUP ETF, volume is still much stronger on up days than down days.

Conclusion: I’m looking for a silver bottom between 16.15 and 15.20. It will probably be on the higher side of that due to the strong support at the $16 level. We’ll need to keep a close eye on the dollar to see when the uptrend will really take off, since an uptrend will likely be weak (or more likely non-existent) as long as the dollar continues to rally.

Nintendo has been in a general downtrend for a while now. In December, it started rallying pretty quickly on news that the Wii was outselling the PS3 during the holiday season and then news that the Wii will get Netflix streaming videos sometime soon. I actually called the top at 35.40 the evening after it closed there. The huge rally had made it overbought no matter what indicators you looked at, and that day’s volume looked like a text-book exhaustion gap to me. Since then, it has headed steadily lower.

My target for the movement was 34.50 - down $.90 from its top. I picked it as the 1st Fibb retracement of the gains. Today, it went below 34.50 during intra-day trading and closed just up from that at 34.82. Reviewing the chart today, I think it will go much lower than my initial call. Most of the indicators are still overbought, and volume is picking up as it heads down. There is some support at 34 from the continuation gap that happened there during the rally and the Sept top, but it is looking like it has the momentum to close that gap. Support is better at the bottom at that gap around 33, which was also a top in both Oct. and Nov.

I actually tried to trade on this one but my broker couldn’t get shares for me to short. That’s the disadvantage of using a discount broker, I guess.

It’s been quite a while since I blogged. To be perfectly honest, I lost a lot of interest. I blog mostly because I think I can learn from reflecting an my experiences, and I like to think other people who stumble onto them might learn something as well. That’s why I choose to write about the path of my financial education. Lately, with the pace of learning I was trying to take, I didn’t have much interest in reflecting since I was excited to charge ahead. In many ways it is probably better to restrain the speed that I’m trying to learn and make sure I’m really absorbing this stuff. At the same time, I think learning quickly is a guilty pleasure I can allow myself from time to time.

Tonight I happened upon an idea that’s got my interested in blogging again. I’ve done a lot of reading about how to invest. I’ve started following the financial economic news and trying to analyze the data and come to my own conclusions about where we are headed. If the “Great Recession” has taught me anything, its that it doesn’t matter how good the investment has been performing. What makes investments profitable is accurately guessing at generally how it might perform during the time you are invested.

To force myself to focus on studying and analyzing where things are heading, I’ve started doing some small-time speculating. I have very little money in it at this point, and I don’t plan for it to add substantially to my income. I’ll be happy to break even after fees. What I’m after is the learning that is sure to take place as I watch various indexes react to economic developments. I’ve started reading a lot of economic history, and my thinking is that its never too early to start trying to apply history’s lessons to the present (as long as I can keep the risk low.)

I intend to occasionally (and hopefully even regularly) blog here about my thoughts on various sectors. Writing out what I’m thinking will help me collect my thoughts. Publishing it will help me to go back over it later and see how my predictions fared and why. I don’t recommend trading on my ramblings, since I’m new at this and probably won’t trade on all of it myself.

With the introduction out of the way, tonight I want to send some time on silver. I’m talking about the commodity - the white metal. I’m interested in precious metals mostly as a hedge against fiscal mis-management that is happening around the world. I’m not really a gold-bug in that I’d rather not own precious metals. They are unproductive investments by themselves. However, any good invester has to manage their risk, and I think there is certianly some risk that the mis-management of fiat currencies will affect the stability of the economy in the near future. Well, more than it already has, anyway.

Looking at the weekly chart, silver has been in a steady up-trend since November 08. The latest rally started in late July and broke down in early December. It corrected down until late December, and is now heading back up. The weekly chart looks pretty bullish, with the price sill within its up-trend channel and MACD still making higher highs and higher bottoms.

The daily chart, however, doesn’t look so strong. The MACD formed a triple bearish divengence before the corrected in early December. Although it did correct, the correction wasn’t very substantial. The previous 2 corrections of this uptrend averaged 20%. The correction from early Dec to late Dec was only 12%. The price tried to break out in a rally, but volume (using SLV as a proxy) has been weak.

The analysis of gold is similar - a bullish weekly chart but lots of weakness in the daily chart. The dollar also has been rallying recently, but headed back down last week. The long-term outlook is pretty bearish.

My conclusion is that the consolidation isn’t complete yet and we are near a local top, so prices should head down in the next few days. A 20% correction from the Dec high would put silver down at $15. From there, the long-term trend should take back over with an upside target of $21.

Again, you probably should not trade based on my analysis since I’m still learning and may not even trade on it myself, but it would sure be fun just to be right.

One of the things that I’ve started to notice as I read economic news is the burning desire of most people to want the economy to be in good shape. They don’t necessarily know what policies would do the economy real good or have suggestions on innovative new industries, these are economists and reports who feel their job is to make the situation look good - to find the ‘green shoots of economic recovery’ no matter how chared the landscape. People want things to look rosy to a fault.

Take this article: U.K. Home Repossessions Rise at Slower Pace. Sounds good, right? I mean, if repossessions are slowing, that means people are keeping their houses and not loosing them, which is a positive sign. But that’s not what it says. It says repossessions are rising slower. So, more people lost their house this month than last month in the UK, the number just didn’t rise as much as it rose the month before.

True, rising slower is the first step toward not rising, but even that has to be taken with a grain of salt. One month worth of data does not a sustainable recovery in homes make. Also, there is reason to suspect that (as in the US,) the slowing of the rate is due to banks already clogged with foreclosed homes and allowing borrows to be more delinquent before starting the foreclosure process rather than borrowers actually being more able to afford their homes.

This phenomenon of people wanting to see an incredible bullish economy no matter what the data shows isn’t limited to the current recession. Before the recession began, the picture from mainstream economists was far too rosy. I’ve started to get frustrated every time someone remarks that no one saw this coming or that there was no way to know we were about to enter a recession. LOTS of people saw this coming. LOTS of people tried to warn us about it. Very well respected economists were saying as early as 2003 that things were out of hand and problems were looming. They wrote books about it. They testified to congress. They made public statements. They warned people to get out of the way of the steamroller coming. Unfortunately, during what appeared to be a booming economic time with everyone sucking the benefits, no one wanted to listen and mainstream economists kept telling people what they wanted to hear.

I’d go as far as saying that EVERYONE should have seen this coming. Housing prices were rising unnaturally fast. New, exotic loans were hitting the market every day. I’m not talking about the MBS market or the derivatives people keep talking about on CNN, I’m talking about the loan you signed on the house you bought. I’m talking about interest only and negatively amortized loans, huge balloon payments, and option ARM’s. It doesn’t take much sense to realize you shouldn’t be able to get a loan where you own more and more over time - that’s not natural. Refinancing your house to buy a $3000 TV with a life expectancy of 5 years that you are now paying off over 30 years is not financially responsible just because the bank lets you do it. Everyone should have at least smelled something fishy. If you didn’t see this coming, its because you were looking so hard for the green shoots you missed the raging forest fire burning behind you.

I have to admit I was caught up in it all too. Worse yet, I did smell something fishy, but I didn’t dig into it. That won’t happen again. The best thing to do when you make a mistake is to learn from it and never make that mistake again. I’m looking around at what might happen next. I’m learning how to handle money. I suggest everyone do the same. If you see what I’m seeing, you might realize things are going to get worse before they get better.