The Platinum Indicator

In my previous post. I said that the silver shake-out indicator being set up is one of several signs that the long consolidation in the precious metals was nearing an end. Another such indicator is platinum. For whatever reasons, it has long been observed that platinum tends to lead gold in major moves up. One reason for this that comes to my cynical mind is simply that platinum is not as heavily manipulated and suppressed as gold. So as big money moves back into the PM sector, platinum winds up being the trailblazer.

As a past example of this, let's take a look at how the big move out of the 2005 consolidation range took place. Since a weekly bar chart filters out a lot of distracting noise, lets compare gold and platinum over that time. First, what did gold do?

Gold bounced around in the range making several trips to the bottom before finally breaking out in September. Now let's look at what platinum did:

Platinum did not go to the bottom of the range toward the end and broke into the major rally many weeks ahead of gold.

This pattern does not always hold true, but platinum has a very strong tendency to lead gold - and at the tail end of the train is silver, the most heavily manipulated of the metals.

So what is gold doing now on the weekly chart?

Gold sank to the lows of the range at what will likely be near the middle, in May of last year. It is now stuck in the lower half of the range and has not broken the downtrend line formed since the high it made back in October. What's platinum up to?

Platinum was a little more hesitant to hang around the May lows and began acting better than gold after this point. And just this past week, it forcefully broke the downtrend line from October and is now well into the upper half of the range on good volume. It seems to want to again lead gold out of the range.

The Silver Shake-Out Indicator

We may be nearing the end of a long consolidation of over a year in gold and silver. There are many signs of this, but I would like to focus on just one here - the silver shake-out clue. Since the beginning of the gold and silver bull market, there has been a certain pattern happening like clockwork signaling the start of each of the major advances of the precious metals. You can see this clue develop over the course of each of the major sideways consolidations of many months. I recently detailed these - see  Is There Another Silver Shake-Out Coming? This shows the cases where this has played out before. I will not clutter this piece with that, you can peruse my blog article for such clutter. I will just show here the generic silver shake-out:

You don't have to be a psychologist to see that this pattern seems to be designed for maximum investor discouragement and is ideal for short-term owner release of shares and/or metal. There is also the 2010 version of this, which was more pronounced that the previous cases. There seems to be a law with these shake-outs - they get progressively bigger, and the following climbs get more massive as the bull market continues. The 2010 case looks like this:

This was a somewhat malformed iteration of this fractal with the triangle formation being a pennant, not the flat bottom triangle like the others. But the 4 bottom development is there, and the 4th bottom shake-out was bigger - the biggest of the whole bull market thus far. And consequently, the following climb was the most massive yet:

Is all this 1,2,3, and shake-out, just in front of the monster climbs just a coincidence? Not at all likely. What are the odds? Technical analysis and fractal analysis measure all kinds of strange things in nature and the human heart. And I suppose it could well quantify what evil men do. Silver price manipulation over the years has been well documented, and I won't go into that here. But I think this repeating pattern may reflect a desire to suppress the silver price and separate as many ounces of silver from their owners as possible, just when other parties would like to buy.

Why does silver get this shake-out treatment while gold seems relatively unaffected? If you look at these four phase take-downs of the past and compare them with what gold was doing at the same time, you see that it is overwhelmingly a silver thing. Of course, silver is more volatile than gold, and any move down by the pair is more severe in silver. But there is a clear pattern of separation between gold and silver over the course of these consolidations, with silver progressively getting a more severe take-down than gold each time. The silver/gold ratio charts reveal this. For example, for the 2007 shake-out:

This ratio chart is not the flat bottom triangle pattern, but a more severe beating and a lower low each time until the big shake-out. By the time the shake-out happens, it is almost imperceptible on the gold chart. Why does gold get a pass on these consolidation-ending smack-downs?

By the end of a long bout of price suppression measures, could it be that the silver market is much more easily manipulated that the gold market? This was directly stated in an article from mid 2010 Silver Short Squeeze Could Be Imminent :

The silver market provides a window into what is happening in the gold market. Because the silver market is very small and its short position is so concentrated, its price is easier to manipulate than gold, but the same manipulation is taking place in gold on a much larger but less noticeable scale
PR Newswire (http://s.tt/1rCya)

And concerning the shake-out shown above of early February, 2010, the biggest of the bull market thus far, the article had this to say about the orchestration of that event:

On February 5th, we witnessed another sharp decline in silver prices...  The temporary wash out that occurred on February 5th was predicted by independent metals trader Andrew Maguire , who came out this week exposing the fraud that is taking place in the paper silver market. On February 3rd, Andrew Maguire wrote Eliud Ramirez , a senior investigator for the CFTC's Enforcement Division, giving him the "heads up" for a "manipulative event" signaled for February 5th.

He warned the CFTC that JP Morgan was about to manipulate down the price of silver after the release of non-farm payroll data on February 5th. Andrew said that the takedown would happen regardless of if employment was better or worse than expected and the price of silver would be flushed to below $15 per ounce. During the next couple of days, silver was crushed ... to a low of $14.62 per ounce.PR Newswire (http://s.tt/1rCya)

So where are we now on the shake-out map?

We have formed our three bottoms and the flat bottom triangle. And we have the silver/gold separation of all the other shake-outs:

We have a bunch of cranky silver owners. We have everything but the shake-out. Nothing says the end of our present consolidation has to abide by the previous script. But if you are a holder of gold, and in particular silver, do not be surprised if we get this kind of move soon. And if you are looking to add to your exposure to silver, you may want to watch this pattern, because you don't want to buy in front it. It may resolve into the next major upleg without a shake-out, but if it happens, it will be a prime buy point.

MASC Update

Refer to the post on MASC a couple days ago. I said that the buy point would be if it convincingly breaks the long resistance at $9. Well, it appears to be doing just that now. It has headed into the monetary catch-up move I had outlined in the previous article, so I am adding it to the recommend list at about the $9.27 it is trading at now.  The valuations are crazy good, the fractal and technical condition is good. The main thing I don't like is some recent light insider selling, but if you look, it is all by just one officer. That usually is nothing to worry about, and the overall condition of the insiders is pretty confident. They are buying back their own shares as a company, as the article I linked to highlights, and the insider ownership level is high at 24%.

Is There Another Silver Shake-Out Coming?

The long year-plus consolidation in the precious metals may be coming to an end soon. And it behooves us to be mindful of how past long consolidations ended with silver, because it tends to be very fractal, that is, self replicating. The wave counters (my derogatory name for Elliott Wave enthusiasts) seem to be thinking that the recent down move of the last month isn't done, and they target about a $26 price before a very large wave up to "well north of $50" as one of them says. They've been calling silver right lately. Silver is EW friendly as well as fractal.

Well, I tend to depend more on fractal than Elliott Wave. So I took a look at the past long consolidations in silver, and found some things of interest. The first consolidation was in the sleepy beginning of the bull market back in 2003 (click on images to enlarge):

Here we see a descending, flat bottom triangle with 4 bottoms. What followed?

It presaged the first monster climb of the bull market. Then in 2005, there was a similar long consolidation:

The same flat bottom triangle with 4 bottoms, only the 4th bottom went lower than the others on huge volume, a "shake-out" where the impatient, short-term weak hands are shaken loose from their holdings at precisely the wrong time. What followed?

That's right, weak hand remorse. There also was a long consolidation in 2007:

Again with the flat bottom triangle and 4 bottoms with the big shake-out at the 4th one. What followed?

The same pattern with the same result. So how is the current long consolidation of over a year looking?

Pretty much the same as the past ones. The wave counters are targeting 26 in this move down, which would also be a more discouraging low than the previous 3 for maximum shake-out, same as the others. If you are a holder of silver or gold, and we get this kind of move, do not be surprised.

Materials Science Could Soon Climb

Materials Science Corp (MASC) is one of those snubbed, abandoned stocks I just fall in love with. They are a deep cyclical being tied heavily to the automotive industry. Their sound deadening and other coatings are what the recession killed, but it's been 5 years now since drivers began making do with their older cars. These cars, with their old car problems, are building up some pent-up demand for new car smell. Total new light vehicle sales for 2012 are up 15% over 2011. That's very non-recessionary like. Investors may soon stop hating MASC so much.


A Seeking Alpha article back in October, 4 Industrial Suppliers Buying Back Shares by Debra Fiakas, featured MASC with the sub-title Unappreciated Materials Science:

 Even if its sales have been stubbornly flat over the past few years, Materials Science Corporation (MASC) consistently delivers strong profits. The company develops and sells acoustical and coated metal products to industrial customers. MASC is valued at multiples well below averages for its peer group. The appearance of slow growth and reduced earnings may be at the foundation of this rebuff by investors. The year-over-year earnings comparison is difficult in the current fiscal year after the company reported a one-time income tax benefit in last year. Only one analyst has published sales or earnings estimates for Materials Sciences, so the company's prospects are getting little scrutiny.

I like the "little scrutiny" part, but I don't like things like one-time tax gyrations in the eps.  That's one reason I place little importance on PE when valuing a company and look at the cash flow from operations history. With MASC, the revenue is flat, the earnings are one-time warped, but the cash flow is really good:

Despite the tax issue, the trend is clearly there toward better results, and the cold shoulder being shown to this stock makes me want to buy it. It started to warm up from the cellar in 2010 along with the better cash flow, but has been stopped by a big resistance level at $9 that I think may be giving way soon:

It has built some nice valuation numbers since being stalled here - price / cash flow is 6.4, price / revenue is 0.7, and the PE is absurdly low at 3.6 with maybe some tax distortion. It has a very strong fractal profile right now suggesting a high energy move either up or down. I would wait until it breaks the ascending triangle formation one way or the other. Right now it looks like that would be up, but a decisive break hasn't happened yet.