We never know what the catalyst will be for the next market sell-off until it happens. For a few months we have been preparing for the inevitable market sell and whether it is starting now, or a week from now, we are not guessing, we are prepared.
The traders that cornered Game Stock are not finished, they are going after others and one equity they are focused on, going into the open, is Silver.
With the big earnings week out of thets in general.e way, focus is going to be on the economy.
Monday we get US PMI and on Friday we get NFP and Unemployment rate.
On Tuesday we get Euro Zone GDP
The S&P tested the 3680 support level in overnight trading and is attempting to make a rally here. Looking for an open above 3760 for a push back to 3800, but if we fail to close above the 3800 in the next couple of sessions looking for a leg lower to 3560.
3900 can still trade if buyers can push through 3800, but we are bearish on the market in the mid term with a target of 3400 initially. With that said we are positioning for a broader pullback.
Short term there are going to be rallies that make an attempt at the high, but IMO this is likely the start of a broader pullback. Very possible to see 3200 trade over the next 4-6 weeks.
Even in bear markets there are stocks that will push new highs, so we are focused on stocks that are relatively strong as the market is selling here.
Dow Jones ETF
The instrument we chose for a short trade was the Dow Jones ETF DIA. With T1 hit we are looking at adding another short position into any strength or retest of the high.
Reasonable to see 280 trade from here, or a 10% pullback off the high, but if we get another signal, we will be looking at a final target in the 260 area.
Bitcoin continues to hold 32k which is the support level we have been watching for weeks. Several attempts to take out the 32k level have failed, and we are now getting a second setup for a long.
As mentioned to our Active Members, I wanted to see either capitulation into the 27500 area or lower, or a push to 38k and a higher low. Appears we are getting that higher low formation as an inside candle to go long off the 32k support zone.
However if the market in general makes a turn for the worse, doubt Bitcoin is going to be exempt from selling pressure. Maybe it escapes, but most likely it does not, so important to be nimble and keep stops in place on any longs out of this area.
Very reasonable for 45k to trade from here, but we are not out of the woods yet. Want to see one more higher low off the 38k level or take it out to confirm. In short, swing trades in this area should be considered aggressive and risk adjusted accordingly.
A lot of talk about silver this weekend, and it is surely playing out as many expected. Several of the larger dealers like APMEX and Silver Doctors pulled their silver off the site until the open last night.
This is starting to feel like the bull run in 2008, where physical metal prices way out paced spot futures. When generic silver bars are trading at $10-$15 over spot, or a 30-50% markup, it is surely a sign we are entering the FOMO period.
This is good for silver and metals in general, as it can bring a whole new generation into the coins and physical metals market. This can create a long term bull market for both gold and silver as these new entries start to collect.
IF we can take out 30.0 this week, I am looking for 35.0 to trade pretty quickly. Need a close above, and a continuation to confirm. Over the course of the next 12 months not out of reason to see 50.0 trade from here.
Investors had nearly 8 years to slowly accumulate silver in a period where you could have often bought silver eagles for 69 cents over spot. There was a surplus of gold and silver in the market and dealers couldn’t get rid of it. Just a year ago was able to buy Gold eagles for $35 over spot, Pre-33 Gold for often melt, with AU-BU (under MS64) going for $5-$25 over melt.
However most are looking to get rich quick and simply did not take the simple DCA approach to accumulating out of favor equities during down times.
Unlike GME, where there are a finite limit of shares available, in the futures market there are an infinite number of contracts that can be created. Also the game was changed in 1980 when the Hunt’s brothers cornered the silver market. Not as easy to take delivery on silver and gold contracts anymore. So I remain cautiously optimistic here, but there are a few comparisons to that era which is eerily similar here.
Interest rates rose incredibly fast during the 70’s, I remember as a kid seeing 8-10% rates for savings accounts as we went to the bank to get rolls of quarters to look for pre-64 silver.
Rates are inversely proportional to the price of Bonds, and rates are steadily rising right now which risks inflation in the coming year. Add to this all the stimulus expected, we could start to see rates rise naturally, and with this inflation.
This would cause the FED to raise the rates, or risk inflation getting out of control. This is not good for stocks as we saw in 2017-2018 when the Fed went through a series of rate hikes.
However they may have no choice but to raise rates this time, and since markets are forward looking, we may start to see this happen well in advance of any rate hike.
Soy Bean Futures
Before the silver rally in the 70’s, the Hunt’s brothers attempted to corner the Soy Bean market.
The reason they were going after these types of equities is because they thought the dollar was going to collapse, inflation was setting in and they wanted to be positioned in non-inflationary equities.
Soy beans are up nearly 70% from there lows.
You would think with big push to renewable energy oil would be suffering right? Quite the contrary, it is clearly in a bull rally and it appears higher prices are in the future.
Nice tight bull flag is a sign that buyers are still interested even at these levels. I am looking for 64.0 to trade by summer if the current momentum continues. Rising oil prices are inflationary along with food prices. This may be the beginning of an inflationary run not seen in decades.
Long oil is a play here and though we bought a small position in VLO back after the election, we are looking to buy more oil stocks in the near term.
Gold Silver Ratio
Tortoise and the Hare
Been a while since I spoke about the Gold Silver ratio but good time to bring it up again. This is a multi year trading strategy where above 70 or so you only buy silver or trade Gold for silver, below 60 you are looking to trade silver for gold and remove your risk equity.
When silver rallies it tends to rally hard. When it pulls back, it pulls back much harder similar to the Tortoise and the Hare. Tortoise is slow and steady, the Hare is quick but tends to take a lot of breaks.
This is also similar to Bitcoin and Alts. The rallies in Alt coins are quick and big, but so are the pullbacks. Gold and Silver behave similar.
Take for example the G/S ratio at 90. You can buy 90 ounces of Silver for one ounce of Gold. Hits 50 you can trade 50 ounces of Silver for your one ounce Gold piece back and sell the other 30 at elevated prices to remove your risk capital building cash for the next metals bear market.
Again this is a multi year / decade trading strategy, but you are not chasing, you are in it when the big runs happen, you are positioning in your favor when the market is hot, and accumulating when the market is not. All the time building up a solid position in Gold.
This cycle repeated twice and potentially a 3rd time here over the past 20 years. It is simple, but few want to take the tortoise approach to creating long term wealth, they want to be the hare.
So what would one do now? Plan for the future! If you are younger than 50, this is going to play out a few more times over your investing career. Instead of buying starbucks coffee or other crap that has zero return, but a little metals here and there, with the Gold/Silver ratio your guide to what to be buying. I have seen many get wealthy using this strategy, it is simple, yet few want to take the long road.
Mentioned this for two years after we started the site, those that DCA silver have to be happy here.
I also like Ethereum for a position trade, but still too early to take it yet. Want to see either a pullback into the low 1000 area or a break of 1450 and retest of this level to go long.
Reasonable for 2000 to trade from here, potentially 2500, but these are target levels I want to be selling into, not chasing.
So why not just buy here? Well my capital if finite, I assume most only have a limited amount of cash to put to work, so I want to either buy a pullback or buy when the market has confirmed.
We are still in a consolidation period and price action can be random as bullish as it looks. I am taking the patient approach here, and I do not mind giving up 150-200 pts to buy confirmation, if I have a 50% probability of buying 300-400 pts lower.
It is a coin flip IMO, but no doubt on its own merit this is a nice continuation pattern for a leg higher.
Looking for relatively strong stocks in this market and Sunpower is one of those stock. Simply green into a sea of red, so if the market pops, it should provide another leg higher.
The 62.0 level is a reasonable target here, and we have taken this one as a swing trade with a tight stop in the event it fails to evolve.
We are still taking trades, but with tight stocks and they must be relatively strong vs the market.
Another stock we bought a few weeks ago is Ford. Under the radar for many, the new Mustang EV reviews were quite great, and the new Bronco is already sold and there is a backlog.
Great write up by Paul Fosse who I follow on Facebook, and I would consider an expert in the EV space. Good read on comparing the new Ford EV Mustang with the Tesla model Y.
Regardless it is reasonable for 14.0-20 to trade over the next 12-18 months which is a 50% plus return meeting our criteria to take a position trade. Will be looking to add into any further weakness.
Another stock added to the radar is Skillz.
Like the bullish trend here and though it is consolidating it has not given up much ground. Reasonable to see a push to 34-36 over the next 2-3 weeks, so looking at a potential swing or options trade here.
Try not to get caught up in the Reddit squeezes going on here, it is not my style to chase, I want to be in already. Silver is a perfect example. The big gains are made in the quiet, not in the FOMO.
Also most important is to have a plan and strategy for any trade. You notice I mentioned two here, Ford and Skillz. One I am looking at a 12-18 month time horizon the other a 2-3 week trade so the Reward has to match the Risk. One will not have a stop, the other will, so position size for both will be determined to insure a loss will not effect my capital.
Going to be a tough road ahead, especially if we enter a bear market over the next 12 months. Everyone is talking about the economy picking up in Q3, but I am pretty confident that is already priced in. Look no further than companies that posted blow out quarters and still sold off.
The past few years it was easy money, buy the dip, the market pushes to new highs, but what happens if we go into a 18-36 month bear cycle as we did in 2000 and 2008? How do you handle it?
This is where many will lose the money made in the bull and the reasoning is they had no plan and no strategy to execute.
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