Friday, September 9, 2011

US Dollar and Silver Update

Click on Chart to Enlarge

See the chart above for notes on the US Dollar. There are several technical signs of a new uptrend. Price has now moved above a prior intermediate term high after forming a higher intermediate term low. The ADX line has jumped above the 20 level with +DI above -DI. Price has closed several days outside the upper bollinger band with the bands expanding. All these are suggestive of a breakout move in a new trend.

Click on Chart to Enlarge

The US Dollar typically moves inversely to commodities. If the US Dollar continues up, then we are very likely to see commodities continue to decline. Cotton, silver, and coffee were 3 commodities in this recent bull market that made huge historic advances, which indicates the likelihood of major corrections or bear markets to follow. We already saw a big decline in cotton and captured a lot of it in a blog trade. Silver should be in a similar boat here.

Notice that silver looks a little like the US Dollar over the last year, but upside down. Silver is still in a lengthy trendless phase, which should be a basing for the next large move. This should be down. Based on the fact that this rally in silver since the spring low has taken much longer than the decline, I expect the next declining phase to take about half the time of the decline and the advance together. That could be used to determine how much time to buy on an option trade.

I already have Oct 34 puts on silver, but my plan is to add a new put trade on silver if/when it breaks down and closes below the lower bollinger band with the bands expanding. I will buy about 3 months of time and look at slightly out of the money strikes.

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