Seasons Greetings ! ! ! Published
12/15/05.
Silver and gold plunged this week, and that is great news!Prices
previously reached levels so high that it was becoming difficult to even
justify buying physical metal for a long term hold.Now that prices have
retreated significantly, we can all resume buying as much physical metal as
our hearts desire, without the guilty feeling similar to that which often
follows splurges in an all you can eat restaurant!It is truly wonderful that
the markets offer this buying opportunity in the middle of the holiday season.If
hedge fund hacks, COT commercials, and market manipulators have engineered
this sell off that now enables me to buy more silver and gold again, then
please relay my sincere thanks to those very generous people!
Forcing Profits
Over the previous two weeks, silver and gold prices ascended into the Optimist's
red zone where it is mandatory for him to take partial profits.The
Optimist imposes that rule on himself because it is painfully difficult to
sell positions which are rapidly gaining in value.Even though prices may have
advanced substantially in the previous weeks, we optimists are ever hopeful
that this might be the big one where prices would quickly explode and more
than double during the next week.With that optimistic mindset, a mandatory
rule which forces me to take at least a few partial profits is a valuable
addition to my trading plan.
Fear, Greed, and Greedy Fear of Lost Profits
Most market observers recognize the perils caused by the fear of losing
money as a market moves against your position (an emotion that commands you
to sell all your positions near the bottom of a move) and greed (which
beguiles you to buy too much near the top of a move).A third emotional
roadblock to success in the markets is the fear of selling a winning position
and thereby losing all the additional juicy profits that would have been
there if the position was not sold.That fear of not making all of those
additional profits we are so sure are just around the next corner can trap us
into greedy inaction precisely when we should be executing the partial profit
taking portion of our trading plan.
Buy or Sell Monday Morning?
Several of the precious metals market soothsayers that we have all read
intently are sure that silver and gold are great buys today, and we should be
fully invested.Other market analysts are just as certain that the
blisteringly hot move up since August is now history, and we should sell
before prices fall further over the next five months.Buy or sell?What to do?!
The Optimist can feel that all eyes are turned to see his definitive opinion
about whether readers should buy or sell now, next week, and next month.I can
rise to the occasion and offer a clear and unequivocal "I don't know!"The
world wide markets for silver and gold are ten thousand ton elephants that
can stampede uphill or downhill as they please without regard for the
Optimist's guesses.
Having dutifully cautioned everyone to not make any trades based only on
what the Optimist says, I can share with you my current viewpoint and a hope
I have for the next month.First, I will neither buy nor sell any stocks on
Monday morning.Although the silver and gold corrections this past week were
sharp, both markets only receded from my overbought red zone (where partial
profits were taken) back down into the yellow zone (where the Optimist makes
no trades).The yellow zone is a good place for accumulating more physical
silver and gold, but is not well suited for the Optimist's paper trades, such
as buying or selling stocks, futures, options, etc.The Optimist views now as
a great time for patience, and for waiting to take partial profits if prices
rebound higher into the red zone or for buying more if prices fall further
into the green zone.
A Simplified Elliott Wave View of Silver
I have hope, however, that my wait may not be too long.The chart
of silver shows that the wave up since August looks similar
enough to rhyme with the silver move from July 2003 to January 2004.That
earlier market move had a modest wave up (1), a small corrective wave down
(2), a strong impulsive wave to top of channel (3), and a bone crunchingly
sharp correction (4) which was fortunately brief and shallow.The Optimist
sees a similar pattern in the current wave action from August 2005 to now.If
this price action continues to rhyme with the pattern of two years ago, we
might expect the drop from this past week to have mostly completed the first
down part of the correction (4a?), and prices would soon begin to rise again
over the next two or three weeks to perhaps as high as a double top more or
less (4b?).If so, then that rise toward a double top will return silver (and
undoubtedly gold too) to the red zone where I must again take more partial
profits.Once I am armed with an ample supply of fiat cash from taking partial
profits, I can dream that silver prices would finish this dance by dropping
sharply toward the $8 level (4c?) within a few weeks from now.That would put
silver back into my green zone where I can buy back all my original positions
and more to reinvest my partial profits.
Will the Silver Rocket Launch into Low Earth Orbit
Again?
A quick look at the fifth wave of this silver move, from February to April
of 2004, shows why I am salivating into the keyboard as I type this
commentary.Silver exploded almost 40% from the wave 4 correction low of $6 to
a blow-off wave 5 high of $8.32.A similar 40% wave 5 rise next month from $8
would thrust silver to more than $11!!!I have labeled the wave from two years
ago and the current wave with this simplified Optimist Elliott count, and I
will keep that count in my dreams and on my weekly silver chart until
subsequent price action proves that my hopes were misplaced.Until then,
however, this Optimist will have non stop visions of wonderful holiday gifts
all brightly decorated in festive silver and gold wrappings!
Happy Holidays to all ! ! !
* * * Notice * * *
This commentary presents only the viewpoints of the Optimist, and it is
intended only for perspective and entertainment. Please do not interpret any
portion of this work as investment advice. If any of the concepts discussed
here appeal to you, then you must do the work to decide if and when and how you
should invest. The Optimist does not ask for any profits you make, and he
cannot be liable for any losses incurred as a result of your investment
decisions. The Optimist wishes you the best of luck in whatever you decide to
do or not to do. Cheers!
Reader contributions are
welcome, and
excerpts will be added to
this presentation.
Please send comments or
suggestions to the Optimist:
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