It Works.... Until It Doesn't!

Technical analysis is a wonderful thing if you are a trader. But, if you are a long term investor, sometimes technical analysis, market timing, etc. can be more of a curse than a blessing. Consider the following two charts. These are the 95% confidence charts for both gold and silver. This means that 95% of the time, the price of these two precious metals will be found within these green bands. The implications are that if the price is towards the high side of the band, you should sell. If the price is toward the low side of the band, it's time to buy. Sounds easy, right?

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Now, one would assume that we are overdue for a major pullback in both metals since the current price is outside, or on the high side, of the 95% trendline. One may even be tempted to sell his precious metals right now, sit on the sideline and wait for the correction, and then buy them back at a lower price. However, here's the "professional" commentary on the silver chart:

.... you'll notice that the 95% range is very wide. You can see that silver wants to break free from this band...and the rally that began in August last year was the beginning of that breakout, as JPMorgan began to cover their massive short position. The drive-by shooting on May 1st of this year prevented that situation from getting totally out of hand, but they can't hold back the tide forever. I would suspect that long before Christmas, silver will find a home permanently above the 95% line...and a new 95% line will have to be established.

Did you catch that? Let me paraphrase: These trendline work..... until they don't work..... and then we'll draw new ones!

And where does that leave me and you? Should I base my decisions on how things "usually" work, or will this be the one time that it doesn't work and I get creamed? If your luck is like mine, you already know the answer to that question. LOL!

And such is the problem with technical analysis. It usually works.... until it doesn't.

I said all that to say this: The bottom line is "buy metals and hang on to them." Forget the day to day noise and the technical analysis. Look at the long term trend and the direction it's headed and jump on board. It's great if you can buy when the price is in the lower half of the green confidence band, but either way, 5 years from now, you'll be glad you bought regardless of the current price.