Precious Metals Should Reign King After Short Correction

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A major index that is considered to be a leading indicator by both economists and technical analysts tells us that the broad market is going higher. This indicator, the Dow Jones Transportation Index, is fundamentally important because an increase in the transportation of goods by air, sea and land tells us that the economy is improving. And its accuracy as a technical indicator is enhanced when its companion, the Dow Jones Industrial Average, confirms the direction. It is important to study the transports versus other indices to detect possible divergences since a failure of one to confirm the other can lead to malaise or even collapse. Note that on April 1, it appeared that the transportation average jumped to a new closing high while the Dow industrials failed to do the same. This divergence between the two important indices was a danger signal. It wasn’t until April 21 that the industrials followed through and confirmed that the bull market was intact. This confirmation of the major uptrend means that our late December forecast of new highs this year in each of the major indices is on pace. The Dow is targeted at 12,800, the S&P 500 at 1,400, and the Nasdaq’s at 3,700. Another divergence, of sorts, has occurred between the price of gold and the price of silver. Both are in strong uptrends, but the iShares Silver Trust (NYSE: SLV ) ran to over 75% above its 200-day moving average — a huge overvaluation — before encountering profit-taking. It has already fallen 16% from its high of just four days ago. A “normal” correction could result in a decline to below its 50-day moving average now at $37.76. A 50% correction of the move from its Jan. 25 low of $26.03 to the high of $48.35 would land it at around $37.20 where it could again be accumulated. (For more on SLV, see the Trade of the Day .) Precious metals move opposite to the U.S. dollar, which had a slight rally yesterday. But the dollar’s trend is sharply lower and Michael Murphy, of New World Investor , who has been accurate in his dollar/precious metals studies, said yesterday that the dollar could rally for several days and then fall sharply to around its lows made in 2008. If this happens, he expects to see another sharp rally in precious metals. Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net . View Survey