Charting Silver, Gold, Intel, Sysco, and the Small Caps

By Christian A. DeHaemer 

The story of silver over the past three months is the story of a crowded trade.

How many times have you seen the chart below? Plenty, I'm sure.

This is what happens when an asset becomes a market darling over a short period of time.

The asset — in this case, silver — gets bid up too fast.

Some investors go short, more investors buy, the short investors must buy to cover... or risk losing it all.

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Each of these actions feeds the next until the asset gets bid up well beyond its moving average and trend line. This is what analysts mean by “it got ahead of itself.”

Eventually, all of the buying force dissipates and the bottom falls out. Now the buyers who bought last run for the exit and the price drops fast.

Silver ETF

They say they don't ring a bell at market tops or bottoms, but they do plant a flag.

The candlestick chart technique was invented by Japanese rice traders over a thousand years ago.

The white boxes means the asset opened at the bottom line and closed at the top line; the red is the exact opposite. When there is a leg or thin stick, that represents the day's trading range. So if you have a long cross, it means it opened and closed at nearly the same price.

It also means there was a battle between buyers and sellers. The high volume means it was a serious battle with a lot of investors — even some big ones.

SLV is today's volume leader. ZSL — the short silver ETF — is number five on the list.

Runs

Another important factor is that most candlestick trends run three to five periods before they reverse.

It is a good idea never to buy without at least three previous "down" days. (Five or seven down days is even better.)

The above chart is a one-year chart. Each candlestick represents a week.

That means we had five "up" weeks before the reversal. And there's a nice fat doji cross at the top telling everyone who would listen that it was time to sell.

Due for a Dead Cat

You can see the same silver ETF above. But instead of a year-long chart with weekly ticks, it's a three-month chart with daily ticks.

The first thing you'll notice is that there is still a doji cross. And the second thing you'll see is that there have been five down days.

We are also bouncing off support.

I would expect silver to be up $4 to $6 this week...

The gold ETF (GLD) shows a similar pattern, but it's not nearly so crisp. Gold continues to ride its trendline.

Going through the list of stocks with this highest volume will tell you where the market as a whole is heading.

This is Intel — one of the solid tech companies I told you to buy a few months ago.

They just reported a great quarter, and gapped up out of their range.

Intel

I love Intel.

They pay a 3.10% dividend yield. They have $12 billion in cash; year-over-year earnings growth is at 29.4%. They have a PEG ratio of 0.88 and a forward P/E of 9.56. They are a well-run, blue chip tech stock that will benefit from the next business boom.

That said, I wouldn't buy it here because of that massive gap-up. Gaps get filled.

Put in your buy at $20.25 and wait for it to come to you.

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The Small Caps

IWM is the ETF for the little guys. It follows the Russell 2000.

This is a ten-year chart; each candlestick represents three months.

This is the most important chart you should watch for the state of the market.

As you can see, IWM lead the market out of the 2002/2003 dot-com sell-off. Again, it lead the way out of the 2008 housing bust.

Small companies are the most nimble, as they fire and hire people faster than the blue chips. It shows the health of Main Street.

The next few months will tell if this two-year bull market has legs or if we are heading down.

The doji at the top is a bit worrying, but there is no corresponding surge in volume. It remains inconclusive.

Sysco Corp (SYY) with a Shocker

Sysco is the big food distributor.

We've been hearing a lot about food inflation and the high cost of corn. You would think that Sysco would get crushed on margins...

But no — the company reported product demand rose 11 percent to a yearly high; food cost inflation was 5.1 percent mainly due to higher costs of meat and seafood.

The company posted net income of $258.5 million (or 44 cents a share) compared with $247.6 million (42 cents a share) a year ago. Sales rose 9 percent to $9.76 billion.