STOCKS OF SILVER

[the cork]

Gold and silver show signs of a bottom
By Gil Morales and Chris Kacher

Commentary: Europe’s open spigot to support precious metals

PLAYA DEL REY, Calif. (MarketWatch) — When it comes to buying gold or silver, the best buy signals are found in what we refer to as “pocket pivots.”

These are statistically significant buy signals we have developed and used with great effect in our own handling of the precious metals in 2011 as we ourselves have thus far outperformed the S&P 500 Index over 50-fold as of this writing.

Pocket pivots essentially provide a tool that traders and investors can use to gain early entry into a narrow-based ETF such as the SPDR Gold Trust GLD +1.17% or iShares Silver Trust SLV +3.40% , or an individual stock, and they dovetail quite nicely with our general strategy and approach towards either gold or silver.

This approach has adhered to the principle of “buy it when it’s quiet,” and so pocket pivots fit the bill quite nicely as “quiet” buy signals within a stock or commodity ETF’s consolidation that generally occur when nobody is looking.

And right now, with sentiment somewhat bearish on the precious metals, not many investors have been looking. So while investors’ and traders’ eyes have turned elsewhere, the SPDR Gold Shares ETF, shown in a Chart 1 on a daily chart have developed some interesting and positive technical characteristics that could set them up for a bigger move in November.

The SPDR Gold Trust had a very nasty sell-off in late September, but found its low right above its prior breakout point at around the 151 price level soon thereafter. The recent retest of that low several days ago occurred on lighter volume, constituting a successful test of key lows for the gold shares. On October 25th, as we point out on the chart, the gold shares flashed a pocket pivot buy point. A pocket pivot buy point is described by an upside movement that carries above the 50-day or 10-day moving averages on upside volume that is heavier than any down-volume day in the pattern over the prior ten days.

In the chart you can see that the volume on October 25th as the gold shares came up and through its 10-day moving average, the magenta line on the chart, was indeed higher than any down-volume day in the pattern over the prior 10 days. According to our methodology, this is a pocket pivot buy point, and we will begin pyramiding a position in the gold shares from this point.

The iShares Silver Trust (SLV) representing of course, the white metal, shows similar action to the gold shares in that it also bottomed in late September after a nasty downside spill, retested that critical low several days ago on lighter selling volume, and then flashed a pocket pivot buy point of its own, as we see in Chart 2, below. This is very constructive technical action for silver, in our view, and portends a possible continued movement to the upside.

The action in both silver and gold is very constructive off of these recent lows, and with European officials looking to open up the “Euro-QE” spigot as they leverage the European Financial Stability Facility or EFSF, to the tune of 1.3 trillion euros. In our view, this is negative for currencies, particularly fiat currencies like the euro and dollar, and when combined with the strong technical bottoming action we are seeing in both metals, could eventually lead to a breakout to new highs for yellow and white metals. Silver and gold tend to follow one another around, but we might consider gold to be in the leading position currently given that it remains much closer to its all-time highs than silver does.

But we think that in a world that remains awash in fiat currencies as government officials can only continue to kick the can down the road, gold and silver show some strong potential for the month of November.

Gil Morales and Dr. Chris Kacher are both managing directors of MoKa Investors LLC, cofounders of www.selfishinvesting.com and co-authors of “Trade Like An O’Neil Disciple: How We Made 18,000% in the Stock Market” (Wiley, August, 2010).

http://www.marketwatch.com/story/gold-and-silver-show-signs-of-a-bottom-2011-11-01