Gann Global Financial

Now we’ll look at silver. This goes to another complex. We looked at the crude oil, which represents the energy complex, the most important, far and away, for the economy.

Then we looked at the soybeans, very representative of the agricultural sector since basically all the agricultural markets are playing to the same beat, whether the cotton market, the corn market, wheat market, soybean market, or bean oil. They’re moving, in a sense, as a group because basically what’s happened is that this economic dislocation is having the same impact on commodities as a group.

It’s very unusual that commodities are not trading within their own cycles and have some independence, but right now the commodities are really joined at the hip due to the magnitude of what’s taking place.

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But silver and gold are interesting. As you’re probably aware, gold has been amazingly resilient in the face of the deflation which is taking place across the financial landscape whether it’s in real estate, whether it’s in commodity prices and tangible commodities, natural resource stocks, or in the stock market. There’s just a huge amount of wealth that’s been lost, and yet gold has been holding its own.

It is acting as it has historically, somewhat like a crisis hedge. Silver, I’ve said, typically acts like an industrial metal. It does have a crisis component to it, there’s no doubt, certainly in the psychology of people. But we have felt that this rally in the silver, which started off the October 28th low, would be a bear market rally that would then give way to another leg to the downside in the silver market.

We have been looking at this market to see if it would conform to historic norms as far as bear market rallies are concerned. We have to have probabilities in our favor and not guesswork. What we have in this bar (maroon colored) here, we expected if silver was to hit a bear market rally high, it would do so in this maroon area as of January 26th. Well, our high is January 26th, so we’ve pushed it right to the limit with regard to what would be a normal bear market rally.

I say normal because 71% of the time bear market rallies in the silver are less than 2 months, 28 days, which would put us right at this January 26 ending point. That’s not to say that silver can’t continue higher and put in the bear market rally high and then go down. It can do that, but that would be an aberration. It wouldn’t be hitting the averages. I hope you get this, because we’re looking at the market hitting into probabilities most of the time when doing something. We’re moving beyond where we have a target zone and probabilities being in favor of the silver. Once the probabilities start declining, which is what’s happening in the silver market, we don’t want to put our hard-earned money at risk in something unless we really have the probabilities playing in our favor. We don’t have that, and we’re pushing beyond that time window in the silver, so I want to make you aware of that.

Also, by virtue of that, could there be something happening in silver in our overall bearish forecast? Could that be incorrect? I don’t believe that’s the case, but when we start seeing a market not conforming to historic norms, and as it continues to unfold and move counter to what the ideal would be, and then we start to say, “Okay, we can’t do anything with this market. Maybe we’re wrong in our forecast. Maybe we do have a final low.” I say this because we are often in a place where the market doesn’t conform to what we want. We never do anything as far as a trade action, so there’s nothing wrong with being “wrong” in the market. That’s especially true if you don’t lose any money.

We’ve not had a sell pattern shape up in the silver market for getting short. We’re moving beyond our target zone as far as forecasting is concerned. It has to be a marriage of those two. A trading pattern for going short, we have six trade signals that allow us to either enter longs or enter shorts and exit.

So silver is very interesting for us. This is to say that we were looking for an opportunity to go short, we were looking for the probabilities to work in our favor, and as of today the silver market is a neutral-type situation for us, pending additional trade.

Hopefully that gives you some insight that we are not looking to make a rate of return on a market and always be trading in a market. We are very much what we call “guerilla fighters.” We’re looking for our opportunities to move into a market when the probabilities are right, and we have our own advantage for that based upon history and history being our guide.