“Silver is now more attractive than it has been in decades,” my colleague Porter Stansberry wrote to his subscribers.

“Assuming gold hits my target of $2,000 an ounce and assuming the price of gold is 16 times the price of silver,” Porter continued, “then silver should be worth about $125 by the time the bull market in silver reaches its peak.“

If Porter is even half right, then a recently launched silver investment could be the safest way to make over 1,000% in silver.

You see, before this year, we didn’t have a simple way to buy a basket of silver companies. But now we do…

The Global X Silver Miners Fund (SIL).

This exchange traded fund owns a basket of the world’s purest plays on silver mining – 30 stocks in all, with decent geographic diversification. (Silver companies from Canada and Mexico each make up a larger percentage of the fund than U.S. silver companies.)

If you think gold mining companies are speculative – you ain’t seen nuthin’. Silver mining companies are extremely volatile. To see what I mean, take a look at the performance of the underlying index of the Global X Silver Miners Fund, versus the price of silver.

In 2008, when the price of silver fell in half, shares of silver mining companies lost 80% of their value.

Since bottoming in 2008, silver mining companies are up FOURFOLD, as you can see in the chart. Silver is up about 250%.

Shares of silver companies are significantly more volatile than the price of silver. If Porter is right about the price of silver rising 500%, silver mining companies could easily soar over 1,000%.

Right now, you have four basic ways to profit if the price of silver goes up…

You can buy bags of silver coins from a dealer… but to build a serious position, you’d end up with a garage full of silver.

You can buy shares of the iShares Silver Trust (SLV), which tracks the price of silver. (For leverage to the silver price, you could buy double-long and double-short silver funds from ProShares.)

You can buy shares of a handful of silver companies.

For maximum upside, with more diversification than owning just a couple silver stocks, you can buy the Global X Silver Miners Fund, which holds shares of 25 silver companies. It’s a volatile basket. But if silver rises like Porter thinks, you could make 1,000%-plus here.

As Porter told his readers, “However you decide to own it, make sure you buy some silver now.”

Good investing,

Steve

The US dollar advanced for the fifth consecutive session today but we think there is more room to run. Continue to fade rallies in the Euro, Swissie and Pound. Our downside targets are as follows: 129.00, 1.0100, and 1.5250 respectively.

Live cattle is back above the 20 day MA; our suggestion is gain bullish exposure in either February or April contracts looking for new contract highs and potential record highs into next year. Silver and gold have yet to correct but we have yet to rule out this possibility. As we said yesterday on a settlement below the 50 day MA in gold and 20 day MA in silver expect sellers to be in the driver’s seat. Until then we’re cautiously optimistic. Copper is at a fresh two year high and though we’re not suggesting shorts we do not think this appreciation is sustainable without a healthy correction. That likely means 40-50 cents but the question is from what level…$4.30 or $4.50? We still want to see a correction in Agriculture, namely corn and soybeans before re-establishing bullish plays for clients. In reality we probably will hold off until early 11′ but we do want some type of long exposure before the January USDA report. Another limit move higher in cotton today. Some of our more aggressive clients own March put options and premiums were crushed today. Being we think we could get a violent move lower we will stay the course for now. DO NOT trade futures in cotton right now and options traders take your size down as we’re in uncharted waters. We missed a long entry in coffee with clients and remain onlookers from the sidelines. We will be looking to buy a set back of 15 cents if we are given that opportunity for clients. If you trailed your stops in lumber futures you should have been stopped on your longs at a profit today.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Over the last two days, open interest jumped another 12%.

In fact, there’s hasn’t been a substantial decrease in Japanese Ag open interest in the last six months. Compare this to NYMEX, where open interest has been mostly flat since September. And actually fell 5% over the last two trading days.

Most interestingly, the Japanese silver buying is apparently not a precious metals-wide thing. TOCOM open interest in gold has actually been falling steadily for months. Now at one of its lowest levels this year.

One possible explanation is increased trading in Japan from foreign players. TOCOM has been extending its night trading sessions and opening access for traders abroad in order to garner more international business.

This allows nimble traders to play both precious metals and the yen-dollar market at once by buying metal in Tokyo. Perhaps these investors are using this market to arb the gold/silver ratio?

Here’s to Ag,

Dave Forest
dforest@piercepoints.com

Copyright 2010 Resource Publishers Inc.

Note:

The information provided in this newsletter is based on the independent research of Dave Forest and Notela Resource Advisors Ltd. and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained in this newsletter is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided in this newsletter and any other materials which are referenced herein are provided “as is” without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions. Neither Dave Forest nor Notela Resource Advisors Ltd., make any representations about the suitability of the information delivered in this newsletter or any other materials that are referenced herein for any purpose whatsoever. The information contained in this newsletter does not constitute investment advice and neither Dave Forest nor Notela Resource Advisors Ltd. are registered with any securities regulatory authority to provide investment advice. Readers are cautioned to consult with a qualified registered securities adviser prior to making any investment decisions. The information contained in this newsletter has not been reviewed or authorized by any of the companies mentioned herein.

Numerous factors and markets are telling us the odds of short-to-intermediate-term reversals are elevated for numerous markets including silver (SLV), gold (GLD), the U.S. dollar (UUP), the euro (FXE), stocks (SPY), and the VIX (VXX). The objective of both fundamental and technical analysis of the financial markets is to help us better understand the risk-reward ratio and relative attractiveness of a wide variety of investments. Since no chart or annual report can help us predict the future, our study of markets deals in probable outcomes.

The possible drivers for market reversals in dollar, euro, gold, silver, and VIX include:

• Concerns about Irish debt
• Uncertainty related to the G20 summit
• High levels of optimism (bullish sentiment/contrarian indicator)
• Near vertical, and correction-less ascents in numerous markets
• Mania-like moves in gold and silver
• Stretched valuations

We at CCM, along with many others, believe the sharp gains in many asset classes off the summer lows were primarily driven by the expectation of money printing and a weaker dollar. As the dollar weakened, many risk assets or inflation-protection assets rose. One example is gold; note the negative correlation between the yellow metal and the U.S. dollar.

These charts can help us from both a bullish and bearish perspective. If the markets reverse near the areas highlighted below, we would be more apt to become risk averse in the short-term, especially in terms of decisions related to cash. If these markets break through areas of potential resistance, then another leg up in risk assets becomes more likely, and we would be more amenable to increasing risk exposure in the short-term.

Just as a declining dollar increased the appetite for risk over the past five months, a countertrend rally in the dollar may open the door to corrective action in stocks and commodities. The Dollar Bear ETF (UDN) was down Tuesday on a 56% increase over average daily volume. As you review the charts below, ask yourself, “Is this market at a logical point for a possible reversal based on the recent action of buyers and sellers?”

The euro may have reached a point where buyers have become less interested. Recent concerns about Irish debt may also give currency traders a reason to cut back their exposure to the euro. Since the euro makes up roughly 60% of the U.S. Dollar Index, a drop in the euro would help propel the dollar higher. The desire to sell the euro ETF (FXE) was not atypical from a volume perspective on Tuesday, which tells us not to assume anything in terms of a reversal. A decline in FXE over the next few days on strong volume would add credence to the trendline. Average daily volume for FXE over the past three months was 1,556,260 shares. A decline over the coming days on more than 1,867,512 would add to our bearish concerns. A break to the upside on more than 1,867,512 would lean toward favorable outcomes for risk (stocks, commodity-dependent currencies, and commodities).

Technical analysis can look complex, but many of the most useful tools are very easy to understand. Trendlines are used to identify areas of past importance in the minds of buyers and sellers. Buyers tend to see value at areas of “support” and sellers tend to see “overvaluation” at areas of resistance.

The VIX, or the “fear index”, has reached what many would term as a level of “complacency”. A rise in the VIX, especially a sharp one, often occurs during periods of risk aversion. The VIX ETF (VXX) was up Tuesday on strong volume.

Silver tends to outperform gold during periods of risk-taking and when the economic outlook skews toward the more favorable end of the spectrum. Silver may have experienced a blow-off rally yesterday (SLV). Markets cannot logically rise in a vertical fashion forever; silver will correct at some point. Another day of high-volume selling would increase the odds that Tuesday’s intraday selloff on extremely high volume was indeed significant from a bearish perspective. As we head into trading on Wednesday, silver gets the benefit of the doubt since the bulls have been firmly in control, but Tuesday was a big yellow flag for the silver bulls.

Gold’s appeal has increased as fiat currencies are being debased around the globe. Gold has not had the high degree of mini-mania seen recently in silver, but the yellow metal has also reached a point where the desire to sell may now exceed the desire to buy. The gold ETF (GLD) was down Tuesday on strong volume.

The S&P 500’s intraday high on November 5th was 1,227.08. A 61.8% Fibonacci retracement of the October 2007 to March 2009 bear market falls near 1,228 on the S&P 500. These levels can be important to traders, so it is helpful to keep them on your radar, especially when you have trouble understanding why a market is stalling with no apparent resistance nearby.

The chart of the S&P 500 seems to be a little better positioned relative to overhead resistance. If stocks can push higher, a move to 1,234ish to 1,256ish on the S&P 500 seems within reason. The S&P 500 ETF (SPY) was down Tuesday on below average volume, which again highlights the need to pay attention rather than assume reversals are going to take place – no one knows what is going to happen, especially over the short-term. Over the summer, many were convinced the Hindenburg Omen spelled doom for the markets; the S&P 500 is now 16.7% above the Hindenburg Omen lows made in late August 2010, which is just one example of the importance of remaining flexible in terms of market outcomes (bullish and bearish).

Trendlines are broken all the time, which reinforces the probabilistic nature of this analysis. We cannot predict the future, but we can say it makes sense to pay attention over the next week or so. With the information we have in hand now, we believe many market reversals will represent corrections within ongoing trends. We believe gold, silver, and stocks will eventually make higher highs after the next correction, which will come at some point. We recently outlined other concerns about the dollar, and concerns about gold, which still apply to the current market.

If you are a little perplexed by the recent gains in inflation-friendly assets, it may be helpful to scan some of the charts on the lower portion of this Quantitative Easing page. The Fed’s objective of re-inflating asset prices and debasing the dollar will probably lend support to gold, silver, and stocks after the next round of corrective activity. Since there will probably be a QE3, QE4, and QE5 over the next few years, it is worth the time to understand how QE works, what the Fed is trying to accomplish, and the possible impact on your purchasing power and investments.

Silver.

Open interest in silver on the Tokyo Commodity Exchange has been on a tear. Since last Friday, outstanding contracts have jumped 20%.

It would be tempting to chalk the rising interest up to general enthusiasm about precious metals. After all, prices for gold, silver and the PGMs have all been rising of late.

But it appears that silver is something special in Japan. At the same time as silver contracts are being bought up, open interest in TOCOM gold has remained relatively flat.

The patterns on the two charts are divergent. Gold open interest in Japan spiked in July and has declined considerably since. Silver, by contrast, has been steadily rising for the last six months.

Of course, silver can be a tricky metal to pin down in terms of source of demand. With both industrial and investment applications, buying can be driven either by commercial users or individuals.

It appears in this case that individual buying is responsible. Most of the rise in open interest the last few weeks has come from “non-commercial customers”, suggesting the buyers are individual investors looking for a “store of value” spot to stash their money.

The rise is striking, and certainly helping the silver market. We’ll see if it continues.

Here’s to “poor man’s gold”,

Dave Forest
dforest@piercepoints.com

Copyright 2010 Resource Publishers Inc.

Note:

The information provided in this newsletter is based on the independent research of Dave Forest and Notela Resource Advisors Ltd. and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained in this newsletter is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided in this newsletter and any other materials which are referenced herein are provided “as is” without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions. Neither Dave Forest nor Notela Resource Advisors Ltd., make any representations about the suitability of the information delivered in this newsletter or any other materials that are referenced herein for any purpose whatsoever. The information contained in this newsletter does not constitute investment advice and neither Dave Forest nor Notela Resource Advisors Ltd. are registered with any securities regulatory authority to provide investment advice. Readers are cautioned to consult with a qualified registered securities adviser prior to making any investment decisions. The information contained in this newsletter has not been reviewed or authorized by any of the companies mentioned herein.

The recent terrible job and manufacturing numbers have put new recessionary concerns on the table… which has clobbered stocks and crude oil. Silver however, has held like a rock. And just yesterday, it “broke out” to a new two-month high. This is incredible price strength. And if the U.S. government attempts to “goose” the economy, we will see much, much more.

This is not entirely true but metals and energies certainly fit the bill. May Crude advanced again today briefly peaking its head above $85/barrel. If momentum gains and the dollar breaks down we could be looking at $90 in the coming weeks; no this is not an April fool’s joke. Crude oil has gained over 20% since the first week of February and it looks like the bulls remain firmly in control.

Bullish engulfing candle in natural gas on good volumes carries natural gas prices back over $4. As we’ve voiced we think the upward move could start on short covering and this may be the 1st inning. Wait for confirmation early next week. We will be looking to move on July options for clients if a bottom is confirmed.

Picking a top is a dangerous and sometimes expensive game as clients and readers know in the indices of late. On a disappointing jobs number tomorrow look to gain bearish exposure. Our favored play for clients remains June ES puts.

Impressive action in sugar today as a mid-day reversal puts prices back in the green, gaining over 2% today. According to some informed floor traders we spoke to there appears to be large buying in out of the money July and October sugar calls; we will potentially be moving next week in that direction…stay tuned.

Based on the close today we suggested taking off all shorts in cotton; depending on your entry/exit it should we a small loss or a small profit.

The weather over the weekend and if farmers in the Mid-west can get into their fields will set the tone on grains next week. We will be advising to exit May shorts once we feel a bottom has been established in corn. Fresh entries should be looking to buy December corn when a bottom is in which we feel is imminent. The KCBOT/CBOT wheat spread continues to move in the right direction; when KCBOT trades at a premium start looking for an exit door.

Aided by dollar weakness and positive fundamentals out of Europe and Asia metals traded to fresh highs. June gold finished at its highest level in 2 weeks back above the 100 day MA. Use $1115 as support with $1145 as resistance. May silver hit $18 for the first time since late January. We expected this and higher levels in 2010 but we anticipated a correction prior to. The only exposure clients have are July $2 call spreads so we welcome a move higher but we would prefer to see a probe lower to get exposure with futures. The most recent move from $16.50 to $18 in the last 2 weeks was certainly not expected from me. The June US dollar is below 81 closing just under the 20 day MA as it appears sellers are overpowering buyers.

Continue to trade European currencies inversely depending on your viewpoint as I am content on the sidelines until we get a clearer picture. The only constant remains weakness in the Yen; losing 3% in the last 8 days. Continue to sell rallies that are capped at 1.08.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

We may have hit a pivotal turning point in a number of markets today. We will need to see confirmation of reversals early next week…stay tuned. Crude will finish the last trading day of the week 2% lower but will manage to hold onto the $80 level. April will go off the board next week and May will become the front month.

We continue to expect oil to find resistance around $82 and support around $77. We are still suggesting clients to position themselves to take advantage of a probe to the mid 70’s in coming weeks. After yesterdays bloodbath natural gas was able to hold onto to gains today picking up just under 2%. We have a lot of work to achieve the $5 target but as we’ve explained to clients if we see a quick jump expect short covering to get prices back in line. It has been an expensive lesson catching this knife with the only saving grace is that we’ve scaled into natty with a small position.

Once bitten twice shy…if you’re a glutton for punishment probe shorts in the ES and SP with stops at 1167 in June. Nothing notable in softs. Treasuries seem to be running into resistance but expect the inverse relationship with indices to live on. That being said on a sell off in stocks expect higher ground in the debt markets.

Muted action in grains to end the week; corn and soybeans remained above the 20 day moving average while wheat fell short closing just below the 20 day MA. We are suggesting long exposure in corn from these levels and would advise clients to be a buyer of November soybeans on a a trade closer to $8.80.8.90/bushell.

We will digest the Cattle on Feed report that came out today and have a fresh perspective on cattle early next week. While we feel prices are too high we’ve felt this way for the last $4.

The action in gold and silver today was what we’ve been looking for and we expect more downside follow through next week. We see April gold challenging $1075 and possibly $1045 and May silver a trade back below $16/ounce.

The US dollar is back close to 81.00 gaining 0.65% today to end the week. This had all other crosses on their heels with the Cable getting hit the hardest. If we see more downside in metals and energies as we expect we should start to see the Loonie perform as we had originally forecast; looking for a move back to .9500 in the weeks to come.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

Though there is far more profit potential being short or long futures in oil at the moment we prefer sleeping at night and have advised clients to trade options until we get a clearer direction if they intend holding overnight. We are still thinking a set back of $4-6 is likely in the coming days/weeks and have not ruled out a trade back to $70/barrel. Could a 5% down move today be the capitulation low that natural gas needed to find a bottom?

Being prices are this close on the front month it is likely to challenge a trade below $4. Prices have not seen that handle in 7 months. Clients were advised to put in limit orders to buy back the top leg of their June call spreads today. It would take a slightly lower trade to get filled.

Sugar has put in 2 consecutive positive showings for the first time in 1 month. Lets try this again…as long as prices do not close below 18 cents on the May contract we like being long very lightly as we’ve been burned before. Assuming this low holds a trade back to 23 cents could happen quickly.

A safer play could be to trade spreads or options as opposed to futures. OJ traded a nickel lower intra-day but managed to close above a trend line that has held since last fall. We would like to see more downside and should if we can break the aforementioned trend line.

Clients exited their May soybean oil puts at a  loss of $90/per. Corn is back above the 20 day moving average and as we indicated yesterday we like being long. We are looking for a trade back to the previous resistance in the coming weeks to month; about 60 cents above today’s close. Live cattle a gainer by another 1.5% today to fresh highs; though it is tough hold off selling until we see signs of a top.

Gold and silver remained range bound again today with silver off a touch and gold inching higher. The dollar raced higher today taking all other crosses lower with the Euro getting hit the hardest. Roles have once again shifted and now the Euro and Pound are a sale on rallies as opposed to a buy on dips. Our lone currency play is short the Loonie; an interim top perhaps yesterday?

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

We continue to advise clients to be a seller above $81 and a buyer near $77 given the opportunity. Clients hold puts in May contracts and are currently under water. Natural gas has lost its footing again today losing just over 1% as of this post. Clients are lightly long futures and hold June calls and are under water.

Energies have not be kind to us of late but in time we think that will change. New highs in stocks today…DO NOT fight the Fed is the saying! The higher prices get on the indices the more room they have to fall. Now that the S&P is above 1150 could 1200 be challenged? We suggest getting out of the bulls way as for futures and will be advising buying more June puts on evidence of a top. Sugar traded below 18 cents/lb for the first time since July of 2009 today though prices settled almost 4% off its low.

We want to see more evidence before picking a bottom as we’ve already tried unsuccessfully in recent weeks with clients. We expect further downside in cotton but as we’ve suggested we need to see a close below the 20 day moving average for confirmation; in May 80.85. OJ closed down for the third consecutive day but we want to see a trade closer to $1.30 before we would shop longs for clients.

Let the debt market continue to work higher before establishing shorts. Both 30-yr bonds and notes were gainers today but we expect more to follow. If it grows in the ground most likely it was higher today; corn 2%, soybeans 1.5%, wheat 1.85%, oats even joined the party gaining 3.2%.Look for our specialty article on corn published today.

Clients are long corn via futures and options thinking a move to $4.50 and beyond. If in fact Ag continues north clients will be advised to take off the May soybean oil at B/E or a slight loss. They own 40.00 puts and are intrinsic but prices have started to move up, gaining 1.17% today. Much like equities the higher cattle get the better sell opportunity I see in the futures, stand aside for now. Prices have gained 12% in the last 2 1/2 months and are in our opinion close to an interim peak…stay tuned.

April gold was higher for most of the day but started to break lower in late dealings. We favor the sidelines or selling rallies still anticipating a trade below $1100. May silver remains stuck between $17.10(50% Fibonacci level) and $17.60 (38.2% Fibonacci level) with prices closing smack-dab in the middle. We have July call spreads on with clients but are looking for an exit door as we fear there is more downside risk than upside potential currently. We are right back to where we were 2 weeks ago in copper as prices were higher by 10 cents the last 2 days. We expect downside in the months to come; this is more of a long term trade. The dollar is below the trend line but failed to follow through to the downside.

The Pound did rally as expected but the Euro did not…go figure. Our clients Canadian dollar options have moved against them as we’ve yet to get pressure in energies and metals as we anticipated. That is why we played with June options and not futures. They are still alive to fight anther day. We feel it is still doable to see the Loonie come apart but a move down needs to develop from here or we will be cutting losses.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.