PPR - Follow up on Silver

Published : October 13 2010 at 13:19 ET

Silver has shrugged off its high-volume reversal of five trading days ago and has moved to higher highs on the back of a continuing and precipitous drop in the U.S. Dollar. This is an anomalous move, and demonstrates that we are in unusual times.

As we see in the chart of the SLV from 2009, whenever silver has reversed or sold off from a peak after a strong price move, and has done so on massive volume, that has tended to indicate a short-term peak in the metal. This time, however, QE2 is in full effect here as the metal is simply pushed higher by the continuing drop in the dollar, which is quite steep at this point. There is still potential for a pullback in commodities based on a possible snap-back, oversold rally in the dollar, but so far that has not happened. In the meantime, we believe last week's sell signal was valid based on historical precedent, and chasing the SLV now is not advisable. We must be patient and wait for a new entry-point to present itself.

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