Oil, silver and gold. Believe it or not, we old timers can remember days when crude was simply an offhand way for financial television anchors to fill space before a commercial break and the precious metals were afterthoughts, at best.
Obviously those days are in the rear view mirror of the car it now takes $120 to fill with gas on your way to the nearest smelting plant to melt the silverware you got as a wedding present into bars you can store with the gold in your bomb shelter.
With the recent pullbacks in the Holy Trading Trinity making the charts look shaky, Breakout turned to the incomparable Louise Yamada ofLYAdvisors.com for her technical insights. I've seen a lot of chartists come and go, folks, and Yamada is one of the best. She's sharp, rational and doesn't attempt to justify the art and science of technical analysis by throwing excessive jargon atop her trading calls, as so many technicians are wont to do.
Yamada sees the oft-noted weakness in commodities as "a corrective phase, no question about it." The key term is "corrective." A correction is a pause that can refresh a move higher. Think of it as long-time profits taking some gains off the table, but finding buyers as they do so, thus keeping the trading vehicle in a price range as opposed to a collapse.
To get specific … .
Silver: A perpetual voice of reason, Yamada reminds viewers that, prior to its recent ripping move higher, silver was a fairly thinly traded product. Silver traders have to consider it unique "because a little bit of money can push it up and a little bit of money, or a lot of (sellers) can really push it down," Yamada says.
She says it wasn't just the often mocked little guys with the weak trading hands who flooded to the exits when silver broke. "Strong hand holders ... got pushed out" of silver as well, due to the hike in silver margin requirements by the CME (see more thoughts on the CME's move here). The bottom line is Yamada says silver could go as low as $30 "or maybe even a little below," but she doesn't see silver going under its 30-year breakout level near $20.
Gold: "Gold has had a perfectly normal advance," she says. Yamada notes that prior gold moves of a similar magnitude during gold's explosive five-year rally have been interrupted by extended basing patterns. Not to worry, she says -- recent gold rallies have been muted as "demand comes in" at support levels. Just like silver, only without the unpleasant explosive spike.
I've saved the worst, and briefest, for last:
Oil: "No, we haven't broken the trend (higher)," says Yamada, dashing myplan to buy a tricked-out pick-up with 5-foot tires and putting me back in the market for a Prius. Oil at $90 is strong support as Yamada sees it. As is the case with all technicians, she doesn't much care what the politicians attempt to do to ease the pain at the pump. They may make a dent in $4 gallons, but we aren't going back to the days of a gallon for a buck anytime soon.
The U.S. dollar: Sorry, patriots, the dollar is still just a piece of paper, wafting depressingly earthward against other currencies. The break higher I've noted repeatedly broke an absurdly sharp downtrend from 0.83 euros per buck last June to the April 29th low of 0.67, but it doesn't have legs. With 0.71 euros buying a buck today, Yamada says we could see a move about 10% higher to the 0.77 or 0.78 area. Beyond that, she says, we've got "major resistance at 0.80." That works out to just under $1.30 per euro, for those of you trying to time a trip abroad.
Charts aren't the be-all, end-all of financial analysis, but all traders use them in some way shape or form, particularly in the commodity pits. No human being can possibly put together day-to-day fluctuations of, say, global demand and supply disruptions in crude, but you can certainly look at the same chart as the people trading against you in the commodity pits. For those of you so inclined, Louise Yamada is a must-read chartist in both stocks and commodities.