Silver Up and SP Down

By: GE Christenson | Tue, Apr 22, 2014
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Silver has had three bad years while the S&P has had 5 good years. It is time for both markets to reverse.

Examine the following graph of Silver versus the Silver to S&P ratio. It tells me the ratio has returned to levels seen in 2008 and that the ratio follows the price of silver. This is interesting but not that helpful.

Silver vs. SI/SP Ratio - 10 Year Chart
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Now examine the second graph in which the same ratio is plotted against the 14 month Relative Strength Index of the ratio. The RSI is a timing indicator that ranges between 0 - 100 and indicates buy zones when the indicator is low and sell zones when the RSI is high. Currently the RSI of the index is about 23 - quite low and indicating that the silver to S&P ratio should increase from here. Either the silver price should go up or the S&P should come down, or more likely, both will occur.

SI / SP Ratio vs. RSI of Ratio - 10 Year Chart
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Note the RSI of the ratio was about 16 at the end of December 2013 when silver hit its double-bottom lows. That RSI reading was the lowest in 25 years. The December low in silver should have been an important bottom in the silver market and an important bottom in the silver to S&P ratio.


So What Does This Prove?

In a world of High-Frequency-Trading, managed and manipulated markets, gold leasing, politics, and Quantitative Easing, it might mean very little. In the short term markets can be moved rather easily by large traders and influential forces such as central banks. But in a longer perspective, the ratio of silver to the S&P is at a low, the actual S&P 500 Index is near an all-time high, and the RSI timing indicator for the ratio was at a 25 year low in December. The next major move is much more likely to be a rise in silver prices and a fall in the S&P. That major move might be many weeks away but it seems both inevitable and imminent.

Consider this 20 year chart of the S&P. Does the S&P look safe and healthy?

S&P 500 Index 20 Year Chart
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Consider this 20 year chart of silver. Does silver look like it has bounced off an intermediate bottom in a long term bull market?

Silver 20 Year Chart
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Conclusions:

An intriguing article from Bill Holter that addresses silver, an interesting interpretation, and a sssssspossible answer to questions about silver supply is "My Back And Forth Yesterday with John Embry." I encourage you to read it.

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/