iCharts Discussions

[rk_a2003]

[ajayhkaul]

True....But the point is There will be always argument and counter argument regarding the BIG PICTURE

so be it RK ....If the big picture is at hand , TA charts/tools will support in confirmation.

If the charts don't evolve in line as the big picture unfolds, you can modify your Big picture views as you go along. This way you learn a lot about how the markets work and co-relations/inter-market influences ie the CATALYSTs.

Admittedly , not very simple - but It gives you an EDGE and enables you to pick your battles , (position sizes can be larger then)and ride your winners longer.( not to mention intellectual stimulation!)

Buffet , Soros are both BIG PICTURE guys

If you start with the chart/TA only ,you are unaware of the catalysts that come into play and are at the mercy of the 'stoploss' / PROBABILITY or luck and lot more stress as a trader.

Just my opinion and found it helps me a lot as a Techie.

[rk_a2003]

"If you start with the chart/TA only ,you are unaware of the catalysts that come into play and are at the mercy of the 'stoploss' / PROBABILITY or luck and lot more stress as a trader."

True! I don't think that there is another way other than accepting it.

Unfortunately there is no short cut in any sphere of the life.

[rk_a2003]

Have a look at the Chart.Comments added in the Chart it self.

[vinay28]

rk, you can also interpret that it is reaching a bottom like all charts do and then a rallly (increase in traffic) will come. Also, BDI lags the equity market and hence when it makes a bottom, equity market would have already started its up run

[ajayhkaul]

As the economists say .... there's no free lunch , someone has to pay !


RK... the Baltic index is a big picture indicator isnt it ? and a leading one too.

Trading without an eye on such info could get people into premature euphoria.

Do keep posting this chart at appropriate intervals.

[ajayhkaul]

[rk_a2003]

[vinay28]

The paradox here is Market is a leading indicator of Economy and so B.D.I. In the past 3 months Markets Zoomed up and B.D.I nose-dived.

So what can be concluded? Anticipation/Expectations are Bullish and the Reality is Bearish.

Not if economy starts recovering and BDI bottoms out. Otherwise market anyway flatters to deceive!

[ajayhkaul]

Not if economy starts recovering and BDI bottoms out. Otherwise market anyway flatters to deceive!

Vinay .... You are a market participant yourself , right ?

Do you notice your own anticipation in the your above statement ? Thats what the majority may think and drive up the market.

Thats why , once we have set our eyes on the relevant indicators we watch for the other shoe to drop.

Sure .... markets can stay irrational longer than the traders can remain solvent !

Meanwhile , here is info that you may have seen already which shows how there can be a disconnect between data and reality :

although the Chinese GDP growth rate is healthy, other economic indicators point out to a much poorer picture meaning that there is a big disconnect between the two.

Let's look at some of these indicators. China's imports from Japan have declined by 16.2% in December. The Shanghai Container Freight Index and the Baltic Dry Index has seen a substantial fall in freight rates, the latter especially on account of a weak Chinese demand for iron ore.

Chinese electricity use has dipped from a YoY growth rate of 8.9% in September to 7.7% in December. Also, residential investment has been contracting. So the only factor that explains the high GDP growth is too much credit. This has gone beyond the limits of safety; an increase of 100% of GDP in five years, or twice US credit growth from 2002-2007 and will not be sustainable beyond a point.

Also, the notion that China's high savings rate and low consumption will come to its rescue is a false one. China's consumption rate is low because wages are low as the economy has focused so much on investment that a distortion has been created. Indeed, this then proves that GDP numbers emanating from the country have to be looked hard at and taken with a pinch of salt.
Scary stuff ....!

[ajayhkaul]

A case for Gold and Silver --- how about silver @ $100+ ? Read on :


We are at the edge of a major economic crisis. Our monetary system is the underlying cause of this major crisis. The massive debt bubble created by our monetary system is about to burst. The demonetization of gold and silver, has over the years diverted value from these metals, to all paper assets (such as bonds) linked to the debt-based monetary system.

The process of the devaluation of gold and silver, started by the demonetization of gold and silver, is about to reverse at a greater speed than ever before. This is similar to what happened during the late 70s, when the gold and silver price increased significantly. However, what happened in the 70’s was just a prelude to this coming rally. The 70’s was the end of a cycle, this is likely the end of a major cycle; an end of an era of the debt-based monetary system (dishonest money).

This era of dishonest money, has filled the economic world with many promises that will never be fulfilled. There will be a massive flight out of paper promises, into the ideal safe haven assets that would offer protection.

The type of assets that people will flee to depends on the extent to which the assets offer protection against the specific crisis. For example, if people are extremely thirsty, then most would likely go for water, instead of milk or soft drinks. They would therefore rank water higher than soft drinks or milk. The reason that they would go for water is due to its superior properties, for countering the thirst crisis.

In a similar manner, people will run to the assets that have the ideal properties to counter risks and issues brought about by this economic crisis. Most people in the hard-money camp will agree that gold is the asset that people will flee to in this economic crisis, but for some reason, there are those (sometimes respected analysts) that believe that silver is not that safe-haven asset.

I believe that people will (and are) running to gold, not because gold was ordained by some divine providence or something, but: because it has those specific properties to offer protection against the crisis – properties given by God. It follows naturally that whatever assets have similar properties, will be similarly in big demand, as a safe- haven.

What are the properties of gold that offers so much protection against this crisis?

Simplified, it is important to understand that the true nature of this crisis is monetary; therefore, assets that possess monetary properties will be the premier assets. The issue here is not whether gold, silver or other assets are money or not. It is whether they have monetary properties, because that is what people will be after.

Good money should be effective as a store of value, a medium of exchange as well as a unit of account. In order for money to be effective in the above it has to have the following properties:

divisible- should be divisible in smaller units
portable – able to carry it around therefore a high value should be able to be contained in a small space and weight
homogenous – one unit should be the same as any another unit
durable – should not be able to be easily destroyed or eroded
Valuable – should have intrinsic value, normally because it is desirable. Should not be able to be created or discovered without reasonable effort. Normally a commodity itself.

Gold has all the above properties. It is almost a perfect fit. How about silver? Is it not also a perfect fit? In fact, silver is a perfect fit as much as gold is; there is not much to choose between the two. Gold and silver are the two assets that best fit the above properties; therefore both will be the assets in most demand. If someone tries to convince otherwise (that silver will not offer protection like gold), he has to show how silver does not fit the properties that will offer protection against this crisis (the above listed properties).

Personally, I prefer silver over gold. Mainly because: silver offers better value as a result of it being one of the most undervalued assets today, it is less likely to be confiscated (at least for a while), it is more accessible for now due to its lower price. However, I recommend both.

Chart Analysis

Below, I have put together two great long term charts. The top one, is from minefund.com, and features the gold-silver ratio from 1791 to present. The bottom chart, is from sharelynx.com, and features the Dow-gold ratio from 1800 to present.

The first thing is the double-top in the gold-silver ratio, and the recent failed attempt (at the 80 level) to test the highs. This makes a test of the all-time highs very unlikely and a test of 16 (the bottom between the two tops) very likely.

I have drawn a vertical blue line, approximately where silver was demonetized (1870s). Notice how the gold-silver ratio started rising, becoming very volatile with three massive peaks eventually forming. The Dow/gold ratio also made three massive peaks after the blue line.

The Dow/gold ratio (when high) is in some way, a proxy for the extent to which value is diverted from real money to paper assets. The 80 years before the blue line, silver and gold was generally still money. The gold-silver ratio was reasonably stable and lower than 20, and the Dow-gold ratio was at lower levels.

After the blue line, the gold–silver ratio rises significantly, and becomes very volatile. The Dow-gold ratio also rises significantly, showing the extent to which value is being diverted from real money (silver) to paper assets. After, gold is demonetized (by the 30s), the Dow/gold ratio rises even more, making higher peaks, and showing the extent to which value is being diverted from both gold and silver, to paper assets.

This trend has been reversing since about 1999, and it is likely that the speed of the reversal will soon intensify. Notice how the Dow-gold ratio tested the 1 level in 1980. That level is incidentally the key- level at which it broke out of during the 1870s, which is exactly when silver was demonetized. At the same time, in 1980, the gold-silver ratio also made a significant low of about 16. Both ratios were attempting to go back to pre-1870s levels. Was it a co-incidence that both ratios tested the 1870 levels?

After the double-top, it is almost certain that the gold-silver ratio will go back to the 16 level, and even look to touch an extreme level, lower at possibly 7. Technically, based on the extreme highs of the two peaks of the double-top, a ratio of 1:1 is not impossible.

Based on the true fundamentals, it is reasonable to expect things to settle at pre-1870’s levels - eventually. That is, that gold and silver will be used as money, with the gold-silver ratio at between a possible 10 and 16.

[ajayhkaul]

SILVER to play Catch-up?

From the chart, you can see there is similarity in how gold and silver approached their 1980 high. Gold and silver made a triangle-type pattern (marked 1 -3) just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern (marked 1 – 9).

It appears that silver is now past point 9 (29 December 2011), and will now be eyeing that $50 level.

Market conditions often cause silver to fall behind gold, for quite some time, where after, silver normally catches-up in a big way. The fact that silver is still caught-up in a trading range lower than its 1980 high, at least four years longer than gold already, provides a classic opportunity for silver to follow that “catching-up pattern” and zoom to multiples of its 1980 high.

With gold having passed $1700 (twice the 1980 high of $850) already, given the above analysis, it stands to reason that $100 (twice the 1980 high of $50) silver is virtually guaranteed.

There are many indicators suggesting that we are close to a point where silver might catch –up with gold, relative to its 1980 high, in a big way. Analysis of the gold/silver ratio also seems to suggest this. So, as things stand, expect silver to outperform gold for most of this year, and........ target of at least $140 silver by the end of 2012???

[rk_a2003]

Simply Brilliant Ajay!

I have almost the same understanding though personally I wonder why Gold has acquired so much of importance in the human history with out much utility value. ( I am well aware of the reason... and you explained it very well....still )

[ragarwal]

hi ajay,i just went to the site mentoned in the chart u posted,its a nice forum ,but the price of silver at 140$ seems too preposterous as of now.But who knows????

[vinay28]

Good analysis, ajay!

A lot of money around the world is permanently sunk in real estate (brick, mortar, sand, steel and cement) and can not be recovered. Growth in real estate is more than twice the population growth in India and many more times in some other countries. 52% of the world's skyscrapers (above 270 mts) are under construction in china. No wonder they will be in so much trouble. We will also suffer but much lesser.

Gold and silver have most of the properties. When the right time comes (and I hope it doesn't), people will realise too late that they don't have one essential property and that is you can't eat them. Much before that all monetory linkages with gold and silver would have been gone.

For the sake of doomsday scenerio, barter will be only in fuel, food, water and essential goods such as medicine.