The Great Carry Panic Redux

Well, it seems we’ve finally gotten to the bottom of the “risk off” rationale today. The situation at Fukushima has been downgraded to a Category 7, which is the worst possible scenario. As far as I know, there is no “category 8”. In our brief history of dealing with fission, 7 is as bad as its ever gotten. Read more here:

I have a feeling that what we are about to see is a repeat of four weeks ago, when nuclear fears in Japan led to an unwinding of the yen “carry trade” and a steep selloff of all “risk” assets. Stocks, commodities, PMs. All down. For a reminder/refresher, read this:
And this:

So, if I’m right, we are about to see a de-leveraging trade occur again. Remember, I’m a big believer in pattern and trend so I went looking this evening for confluences that could tell us where and when we could/should do some dip buying. Look what I found!

First, take a look at this 12-hour silver chart. Note that “Carry Trade Panic #1” trimmed nearly $3 out of the price yet the trendline contained the selloff and, when cooler heads prevailed, silver continued on its merry way higher. The trendline currently resides in the area around 39 to 39.25.

39-39.25. Hmmm, now where have I seen that before? Coincidentally, 39-39.25 is the exact same area where we see solid support on this 2-hour chart. The most recent breakout-and-consolidation of silver was in the middle of last week. This area now acts as very stout support in this ongoing bull market. Isn’t that nice and convenient. Oh how I wish I hadn’t allowed myself to get knee-deep in the hoopla last Friday. My options account currently has a cash balance of just $236. Shit. If I had any available funds, I’d be backing up the truck at $39 silver.

So, I wonder if the same pattern exists in gold? Whaddayaknow?! It does! First, let’s take a look at a 12-hour June gold chart. Again, laying the primary trendline through Carry Trade Panic #1, we get a support level somewhere between 1440 and 1445.
Gee, I wonder if the 2-hour chart confirms this level? You bet it does! In fact, diligent readers will recall that I’ve been predicting a retest of the 1445 level since gold finally broke out last week. See point #3 of this post:
Here, take a look for yourself:

So, what does this all mean? I’m expecting this current selloff to continue as the financial markets are shaken by a renewed carry trade panic due to the recognition of the worsening situation at Fukushima. I expect silver to drop toward 39 and gold to drop toward 1445, probably as soon as tomorrow. At those prices, both would be screaming, short-term buys as recent history would suggest that the bounce from the trendline will carry gold toward 1500 and silver to 44.

If I’m right, we get a great chance to BTFD. If I’m wrong, the PMs just simply reverse, build a couple of beautiful FUBMs and rally from here. We’ll be back above 1465 and 41 very quickly. As I type, we’re back UP to 1460 and 40.25. Sounds like a win/win to me!

See you in the morning! TF

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