I like silver

Richard Russell snippet
Dow Theory Letters
Jan 14, 2008

Extracted from the Jan 11, 2008 edition of Richard's Remarks

On an entirely different subject, how about silver, often called "the poor man's gold"? Silver used to be a monetary metal, and maybe some day it will be again. I've recommended silver before, and now I'm going to recommend silver again. Back in 1980, gold sold for 850 and silver sold for 50. Then, one ounce of gold would buy 17 ounces of silver. Today with gold near 900, one ounce of gold will buy a whopping 55 ounces of silver. It seems to me that silver, in terms of gold, is "too cheap."

Below you see a P&F chart of silver. This is a powerful formation. At 16.50 silver breaks out. There's an exchange traded fund called SLV. I also show a P&F chart of SLV below. Each share of SLV holds 10 ounces of silver.

Here's the chart of SLV. And yes, it's broken out to new highs. My idea is that you buy some SLV now, or maybe wait to see whether SLV backs off a little and then buy it. Or buy half of your intended commitment now, and buy the other half on a pull-back. Either way I think silver is cheap and a good buy here in this area. My position on the metal can be expressed in three words, "I like silver."

Here's another view of silver via a three-year weekly chart -- a giant triangle with an upside breakout over recent weeks. A pull-back to the breakout level would not be unexpected, but the triangle indicates a large area of accumulation.

Meanwhile, the stock market is in contortions. Nobody knows exactly what to do with it -- buy it, sell it, leave it alone, sit with it? It's an unholy mess. But here's the crux of it. Dow Theory says we're in a primary bear market. That's a dangerous place to be. Bear markets tend to run to conclusion. What does conclusion mean? Conclusion in a bear market is when prices decline low enough so that big money, sophisticated institutional money, begins to accumulate. That's downside exhaustion time and at the same time accumulation time.

lots more follows for subscribers...

Jan 11, 2008
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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