Fear of Deflation, A Weak Economy and Bad Global Debts
June 20, 2010 at 3:30 pm
Copper is an extremely useful indicator which shows the strength of the global economy and whether the economy is growing or decreasing. At the moment Copper is flashing a "red alert!" A very bearish crossover pattern means that copper could go lower for many months.
This pattern is taking place with a broken trend, weakening rsi and momentum. All these signals together makes the chance of a fakeout, bear trap or whipsaw less probable. Next target is $250 which is the 50% retracement.
The bearish copper pattern is taking place at the same time as an extremely bullish cup and handle breakout on gold. Many investors are finding gold and silver a better place to be right now rather than equities or commodities that are more susceptible to a weak economy.
I especially like silver here and have recommended UXG U.S. Gold which has made a huge discovery in Mexico. UXG is one of the leading stocks in the market right now up a 108% in the last 6 months. Although it is extended and I do believe there will be a pullback I am still extremely bullish on this company. In the next couple of weeks more news will be coming out summarizing the massive amount of work UXG is doing in Mexico.
Silver is going to follow gold and breakout into new highs and when that breakout is done a huge move could follow according to my point and figure charting. As you can tell by this chart that as the global economy is in danger people are buying silver. This is a sign of deflation, when the general public hoard silver and gold rather than being exposed to debt.
Silver is making a long term ascending triangle which is a bullish pattern and hasn't violated any trend lines or moving averages. I predict silver on this next breakout could catch up with gold.
In a real economic crisis silver is a much more practical item as an alternative currency as it is much cheaper. A middle class person could easily cash in some dollars to by a roll of silver dollars verse buying gold coins.
The market is also predicting that interest rates are going to stay low as central banks fight deflation and hoarding of precious metals. This is illustrated by the move in utilities to reverse the bearish crossover signal. This signal is usually bearish unless there is a significant reversal close to the crossover.
Utilities is a sector which is extremely sensitive to higher interest rates. When this sector rallies it usually predicts low interest rates. The fear of bad debt globally and deflation is causing a rush to gold and silver and an easing from central banks.
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Author: Jeb Handwerger
Jeb Handwerger
http://goldstocktrades.com
I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.
In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.
I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.
Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.
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