Look Out Dow Below, And Watch For The Silver Streak

You can also view this article on investing.com which was published on Jun 27, 2022 02:31AM ET

Look Out Dow Below, And Watch For The Silver Streak

Dow

Look out for a Dow break below this month’s low; it could portend a significant and potentially swift drop toward 24,000. The near term upside resistance for the index is in the 32,200 – 32,500 zone. I have always watched for rallies (or declines lower, as the case may be) into gap zones.

Gap zones often represent areas where both bears and bulls suffer the most. Above the lower band of the rally’s resistance zone (~32,200), should it get there, many short sellers would be stopped out.

Meanwhile, those waiting to sell at the upper band (~32,500) would end up having to chase the market lower, in the event that the Dow would have reversed to the downside before getting to that higher resistance level.

Simply, a turn down from a point within a gap zone frustrates both those who are short, as well as those who seek to sell. In sum, turning lower from a point within a gap zone represents a worst-case scenario for both existent and would be short sellers.

The May 24, 2022 report identified a low from which, I forecasted, the Dow could double-top around its all-time highs. My reasoning was that most were looking for a counter trend rally at most, while there were those who felt that a new leg up was about to commence.

The short term low was correctly called, but the action since the point to which the Dow subsequently rallied indicates to me that the all-time high identified in the October 25, 2021 report will not be revisited.

3-Year Weekly Dow Chart

As regards the above discussion of gap zones, on the weekly chart immediately below, we can see that intra-June gap as having been closed; however, this is not the case on the Dow’s daily chart which follows it.

On the daily chart, we can see the 32,200 – 32,500 gap zone referenced in the first 3 paragraphs above.

3-Year Weekly Dow Chart

6-Month Daily Dow Chart

Before concluding, I should comment on sentiment. The CNN Fear and Greed Indicator included in prior reports had actually fallen to a ridiculous level of 6. The conclusions in the May report were largely influenced by that fact, as I noted history’s responses to such extreme levels.

I also wrote that acceleration lower would require that something would need to be very different this time, which is not ordinarily a good bet. However, we must examine how and why something could indeed be different this time.

The U.S. government, in the form of the Federal Reserve, along with the most substantial non-governmental interests that are close to them, represent the largest insider traders of all-time.

They have some keen awareness of future interest rate, inflation and economic policy trends. However, Russia was largely an unforeseen wild card.

It is possible that the latter x-factor (Russia/Ukraine) caused a need for the above-referenced insiders to hold up the market, in the face of the mushrooming non-military-related bearishness that was driven by the 3 factors cited in the preceding paragraph.

Holding up a market takes place so that insiders, including the largest investment banks, may line up their sell strategies. Since such strategies include delta hedging, the recipes for a speedy decline can be concocted; delta hedges include option strategies that hedge massive stock positions in the most efficient manner possible (the faster the decline, the greater the number of shares that are hedged since the program involves short term put options).

Do not be surprised if the type of dramatic selling that is described here is triggered by focus on news events coming out of the Ukraine.

Conclusion And Strategy

The Dow opened at 31,717 on May 24, 2022 so, no harm, no foul. Most importantly, however, and notwithstanding anything and everything else, bear in mind the strategy section of the latter report (linked in the paragraph immediately preceding the Dow’s 3-year weekly chart above).

Apart from the rules-based program’s purpose of generating meaningful returns following sustained bullish moves, the strategy is geared to generate sizeable double-digit returns following sharp declines.

iShares Silver Trust ETF

The May 24, 2022 report also called for a silver low. That report also briefly discussed the SLV’s 200-week moving average:

”A year and a half removed from the explosive 2020 run-up’s peak, the iShares Silver Trust (NYSE:SLV) came within 14 cents of the 200-week (4-year) moving average, suggesting that the long term holders have taken their profits and are out for now.”

As we can see from the chart immediately below, nothing has changed to alter the analysis, though I will add that a flush-out (the sort for which silver is so well known) could take the ETF to a level as low as ~$17.90 ($1.50 lower); apart from this chart, nothing at all has changed from the most recent report’s analyses.

3-Year Weekly SLV Chart

6-Month Daily SLV Chart

Conclusion And Strategy

The daily chart above, including its slow stochastic at the bottom, clearly illustrates why a bottom this week would be very typical of silver’s historic price and time cycle behavior.

From the May 24, 2022 report:

”For an options speculator, I would recommend the SLV March 2023, 25-strike calls around ~$1.28, which was Monday’s closing offer.”

The SLV opened at $20.28 on May 24, 2022. The ETF closed Friday (June 24) at $19.51. The option has slipped since the last report to Friday’s closing offer of 97 cents. Barring something extreme at Monday morning’s open, adding to the position at these levels appears most worthwhile for “reasonable speculators.”

My target for the next wave higher is in the $43 area.

Original Post

May 24, 2022June 30, 2022

Dow And Silver Bottoms Are In: A Story Of Sentiment

You can also view this article on investing.com which was published on May 24, 2022 01:28AM ET.

Dow

The Dow Jones has bottomed. This conclusion is based on technical analysis and sentiment. Five of the market’s major fundamental concerns are summarized later in this report.

Four decades of experience in technical analysis has kept me level-headed during times of nasty news. That said, let us look at how the news can support a bullish advance and the extent to which it may do so.

The Oct. 25, 2021 report forecast a peak that was only a stone’s throw away, though the breakdown only occurred this year. It was inferential reasoning that had served as the basis on which I had targeted a top at ~36,000.

The explanation was that a 50% collapse that would only slightly make a new low below 2020’s bottom would stop the advance at ~36,000, since major collapses are about 50%.

A minor break of the 2020 low was my analysis 7 months ago, based on the analyses of multi-decade indicators.

Let us look at sentiment and a 5-year chart of the Dow Jones.

Sentiment

The CNN Fear and Greed Index hit 6 last week, a ridiculous level achieved at the end of 2018 and at the March 2020 pandemic low. In the former case, the indicator did not subsequently peak until the very end of 2019. The bears had been driven through the mud.

After the sentiment indicator’s low in March of 2020, it subsequently topped with the Dow just after the publication of the report that is linked in the 3rd paragraph above (the sentiment indicator had also peaked in late 2020).

Almost everyone who is bullish at this time seems to be saying that the rally will only be countertrend, before again reversing sharply in the face of today’s extensive list of bearish considerations; those factors include inflation, valuations, the reversal of the trend in interest rates, along with the threats of diseases and war rounding out most of the negatives upon which investors may focus.

It would be consistent with both the analyses expressed in the Oct. 25, 2021 report, as well as that scenario that would kill both the bulls and the bears, that the Dow only make a slight new all-time high by about 1%, before collapsing before reversing lower.

The shorts would be mostly out, and the bulls would be suckered into chasing the market to window-dress for the end of 2022’s first half.

Let me be clear about the fact that I am NOT presently projecting any time frame for the collapse to ~18,000. Nor am I claiming that I will necessarily be bearish in any major way as a result of a slight new high in the indices.

A move back to extreme bullishness would obviously help me return to the view that I had 7 months ago and at the peak in 2020. In 2020 I called for a 10,000-point Dow debacle but, this time, I am not yet citing any time frames.

In any event, as regards today’s possible news-supporting positive fundamentals, it could be the end of the affair in the Ukraine, or anything else (other than the Ukraine situation) that could possibly create an idea that inflation is a lesser threat than before; this would create a more bullish outlook for earnings.

An advance to minor new all-time highs in the equity indices could be triggered by any positive news pertaining to the 5 major negative fundamentals that appear in the 3rd paragraph under “SENTIMENT,” above. Such news could set-off the most bullish factor of all at this time, namely, the bears’ stampede to cover their shorts.

Short is what the players indeed are and one need look no further than sentiment, since the latter reflects what investors have already done—not what they plan on doing.

5-Year weekly Dow Jones chart

The fast stochastic (not shown) of the chart is in oversold territory, while the more important slow stochastic joined the fast stochastic in also hitting the 20-level today (under the price’s chart).

The fast stochastic has reversed and is now pointing higher; the slow version below will join the fast stochastic in reversing to point higher, unless the Dow moves sharply higher this week.

In any event, the new low in the weekly slow stochastic is comparatively unimportant; it is the daily stochastic that is much more significant, insofar as divergences and oversold or overbought readings are concerned.

5-Year Weekly Dow Jones Chart

The 200-week moving average has been sufficiently approached, to support the conclusion that long term stockholders have completed their profit-taking for now. Admittedly, however, the 4-year economic cycle does not mean that much anymore, as compared to yesteryear.

1-Year daily Dow Jones chart

As we can see from the chart immediately below, the fast stochastic has already given a buy signal. This is by virtue of its move back above 20 from an oversold condition, after not having made a new low with the Dow.

Regarding the more important slow stochastic, it also slipped under 20 without confirming the low in the market.

1-Year Daily Dow Jones Chart

Conclusion

The positives include favorable stochastic in both the daily and weekly charts, coupled with an extreme low in sentiment that is typically seen only at major troughs. Bears could chase the market to new highs, triggered by positive news concerning any of the five bearish factor cited in this report.

Strategy

Respecting that the negatives out there are indeed serious, and given that one can always run into a set of circumstances that may actually be “different this time,” however rare that such an occurrence may be, the “cowardly” course of action will remain the only strategy to which I would ever sign my name. Therefore, that approach is unchanged:

Since 2019, every report has advocated the same all-weather strategy and nothing else. At the perfect low in 2020, the here-linked Mar. 11, 2020 report provided greater detail of the Strategy’s formula.

As the rules-based methodology was developed over a significant period of time, the report focused on how one may seek steady income, within a strategy that aims to provide substantial leveraged protection against sharply negative quarters.

The preceding article coincided with the low in that year’s forecasted 10,000-point collapse. As with today, the report sought to explain how one may proceed when the terrain seems to be so filled with mines, as to make one too wary to move.

Such wariness is unnecessary, if one moves with wisely calculated prudence.

Silver

5-Year weekly SLV chart

Note that:

A year and a half removed from the explosive 2020 run-up’s peak, the iShares Silver Trust (NYSE:SLV) came within 14 cents of the 200-week (4-year) moving average, suggesting that the long term holders have taken their profits and are out for now.
The fast stochastic (not shown) is oversold and is now pointing up. The more important slow stochastic is also oversold and also looks like it wants to turn up.
The annotations below indicate how standard technical analysis failed those who lived by inflexible rules. The annotations also imply observations that show how the crowd was, and is perhaps again being duped into selling.

Two periods are compared below, to contemplate if the major players are using the same gimmicks as they did in 2020 to flush-out the market:

4. Please note the circled annotation at the far left on the 5-year chart, “LEFT” (November 2018 – $13.17), which was the left shoulder of a shoulder-head-shoulder formation.

Now please note the rectangular box to the right of the circled low at $13.17. When the chart spiked through the head, which was higher than the left shoulder, and the bottom of which was May 2019 at $13.39, EVERYONE’S sell stops were triggered.

That 2020 spike low ($10.86) was actually the SLV’s right shoulder. There was nothing conventional about either the head or its right shoulder. However, this intuitive interpretation was supported by an analysis of the silver-related stock indices, as well as the stocks themselves.

Now please note the pair of annotated periods at the right:

The left shoulder is $19.83, with the circled head just a touch under $20.00, pretty much matching the left shoulder. By this analysis, we have again busted through the head, while coming within $0.14, as noted above.

5. Therefore, we are again seeing a formation in which the SLV has spiked below the annotated “HEAD” of a reverse shoulder-head-shoulder pattern.

As well, we can see that in the two annotated rectangles, each top-to-bottom move took about 2.5 months to form and complete. Or so, I am assuming.

This chart (SLV’s price action) just loves to fake out the crowd in the most inventive of ways, made possible by the relative thinness of the market when compared to gold, and particularly when also considered in the context of the buying power that the major players can exert when they so choose.

Forty years ago, my mentor taught me that rules should not be viewed rigidly, but, rather, should be used intuitively. In fact, one example that he had given me was that the right shoulder of a reverse shoulder-head-shoulder formation, could be lower than both the left shoulder and the head.

My friend did not have to add that this would more likely manifest in the case of an easier-to-manipulate market

5-Year Weekly SLV Chart

1-Year daily SLV chart

The undesirable aspects about this chart are that:

The 200-day moving average is pointing down, while the 50-day moving average is threatening to cross below it. As well, the fast and slow stochastic have shot up against a backdrop of comparatively little upward progress in the SLV’s price.

As regards the daily and weekly 1 and 5-year stochastic indicators, respectively, an ideal resolution for the bulls would be a minor new low in the SLV’s price, thereby dragging the daily stochastic down, without the indicator making a new low.

This would create a positive divergence that would align with the positives cited above with respect to the weekly chart and its indicators.

However, the market rarely makes it easy and is therefore rarely “ideal,” particularly where silver is concerned. Therefore, the risk and probability is that silver may have already seen its low.

1-Year Daily SLV Chart

Strategy

For an options speculator, I would recommend the SLV March 2023, 25-strike calls around ~$1.28, which was Monday’s closing offer.

There are lows that typically take place in the spring and fall, so, if things go wrong at first and one were of the mind to hang on, then one could benefit from 2 bottoming cycles.

This approach would be seeking to improve on probabilities in the aim to reduce risk, particularly since silver is known for explosive volatility when it gets going to the upside.

Note as well that time premiums are low. While the VXSLV data (time premium index on the SLV options) is no longer compiled and therefore does not appear anymore, the GDZ is still quoted. Historically, the two indicators have moved in lockstep.

October 25, 2021June 3, 2022

Dow And Silver Turning Points

You can also view this article on investing.com which was published on Oct 25, 2021 01:12AM ET.

The Dow and silver turning points have occurred, based on the analyses and clear Elliott Wave annotations and interpretations found in last month’s report,“ Dow And Silver Trust’s March To Inevitability.“

Any short term catch-up in the NASDAQ that would hold up the Dow through month-end would be as insignificant as a possible iShares Silver Trust (NYSE:SLV) retest of the $20 area. In neither case would strategy be affected.

While the un-annotated charts below update those from last month, September’s chart annotations illustrate why I believe we have indeed arrived at major turning points. Last month’s clear wave counts imply the interpretations found in both reports.

DOW

In the case of the DOW or S&P strategy, since August 2019, I have advocated an income-generating program that would benefit from the time-consuming rallies that are typical of bear markets, while being simultaneously positioned for leveraged gains in the event of sharp quarterly declines.

As regards my present market view, last month’s report illustrated the ideal scenario for which to be prepared:

“The proximity to the 200-day moving average and the stochastic divergence are plain and clear evidence of a correction of some sort having ended.

“Disconcerting aspects, however, are found in the speed with which the stochastic is advancing toward overbought and, even more ominously, the equally plain and clear dome formation of the top that has been developing since June.

“This means that short sellers can use tight stops, if fading new highs that could result from manipulation that seeks to drag the last dollar and the last short coverer into the market.”

The updated 1-year daily chart appears below. While it is noteworthy that the secularly bearish interpretation continues to play out perfectly, it is critical to understand that divergences in the daily charts have not yet manifested.

That fact would support a decline and rally back to overbought, though to lower slow stochastic levels that are concurrent with a final high in the Dow (once again by a hair). The latter observation must be taken-in, along with the weekly chart (second chart below) that has already provided the bearish divergence.

Still, the 200-day MA and slow stochastic have more logical applications for the short term, for the reasons explained in the past. All-in-all, then, we must comfortably fall back on the preferred strategy; this allows for being positioned, without needing to be perfect and risk missing the next major decline.

I again call attention to the 2007 peak; this scenario would be perfectly in-line with the scenario discussed above, which contemplates a minor new high that would follow a short term decline.

From the Aug. 11, 2021 report:

“Three notable reports I wrote in 2007 (July 7, October 7, December 2) identified key peaks. If one did not trade, however, the first two of those three reports would have left one the poorer. The 3rd was the charm, bearing the title, ‘2008 Dow Crash’.”

Again from the September report:

“The 5-year Dow weekly chart appears below. Beware.

“In contrast to the daily chart above which gave a bullish buy signal divergence that crossed over 20, this weekly chart shows a clear and evident sell signal by way of its negative divergence that led to a break below 80!”

“Conflicting signals are consistent with the Dow’s dome formation that is forming and preparing to roll over and fall out of bed, with a floor far below around 18,000.”

CNN Fear & Greed Index

Again from last month’s report:

“A spike flush-out, as what we just saw, was perfectly consistent with the Dow charts. The “Extreme Fear” reading (below 20) that had already been achieved suggested that a new spike low was already being discounted.

“Will a minor new high in the Dow coincide with a reading in the “Extreme Greed” zone (above 80)?”

As we can see below, a continuation of the spike to 80+ could be completed by month-end (this week). As previously cautioned, though a low in “extreme greed” may have been (and indeed was) achieved, the spike to “extreme greed” could be swift.

Be ready, then, for a key data point within the unfolding major historic turning point in the stock market.

iShares Silver Trust

Sept. 27, 2021 report:

“The 3-year iShares Silver Trust (SLV) weekly chart appears below. My interpretation of the price action since the 2020 bottom at $11 is that the “orthodox low” was put-in at $14, while the subsequent Wave-1 peak concluded at $27 in August 2020.”

Last month’s annotations on the 3 and 11-year charts suggested the possibility of a perfect low. An updated but un-annotated version of the latter is linked here. The updated but un-annotated 3-year chart appears below.

The type of chart in the preceding paragraph gives a very clear look at the critical importance of the $20 level that has been repeatedly seen since 2006, either as resistance or support. Coupled with last month’s annotations, we can easily see why $44 is indeed a very reasonable forecast for the next major cyclical rest area.

Past reports have examined overlay charts of silver versus gold to display the meaningful potential for silver to play fast and substantial catch-up to its big brother. Since silver doubles as a precious metal as well as an industrial one, the overlay chart of silver versus copper since 2008 (courtesy of Refinitiv, immediately below) serves as corroboration of silver’s exciting potential.

Today’s conclusion is unchanged from the previous two months, though the strategy update follows.

From the August 11, 2021 report:

“For speculators, the January 20, 2023 $28-strike calls closed yesterday with a bid-ask of $2.43 – $2.48. In the event of a longer consolidation period, I would advise a more aggressive stance at the next entry point.”

From the September 27, 2021 report:

“The option advised for speculators has fallen to $1.31 – $1.35, and I do indeed advise a more aggressive stance as discussed in the preceding paragraph.”

If so inclined, one may add to the position at month-end, this week. If the week moves even 50 cents higher from Friday’s close over the coming 5 days, one can simply hold off from adding.

Ordinarily, this is not the time to add to long positions, cyclically-speaking. Cycle inversions, however, can occur when markets arrive at major turning points. These are NOT ordinary times, so one must contemplate what may occur during such periods.

September 27, 2021May 21, 2022

Category: The Press