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Dow And Silver Bottoms Are In: A Story Of Sentiment

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

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

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:

  1. 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.
  2. 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.
  3. 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

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

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.


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Dow And Silver Turning Points

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’.”

INDU Daily Chart

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.”

INDU Weekly Chart

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.

Fear & Greed Index
Fear & Greed Over Time

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.

SLV Weekly Chart

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.

Copper vs Silver Weekly Chart

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.







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Dow Down 10,000, Silver Up $10? Part II

Dow Down 10,000, Silver Up $10? Part II

You can also view this article on investing.com which was published on Jan 06, 2020 01:09AM ET.

The title of this article indicates the extreme risks from which the proposed strategies aim to profit; of course, they may also serve as hedges within portfolios. Therefore, this update of the here-linked December 2, 2019 report may assist in fine-tuning one’s timing.

That 2020’s top-to-bottom swing in the Dow could be 10,000 points, while silver’s trough-to-peak move could be $10 suggest that timing is key for those who seek to leverage their investments by being prudent with regard to entry prices. So, the encapsulated technical analysis hereunder is concerned with timing. As for other factors, valuations are at extremes and politics are merely headlines to be ignored.

Reiterating, the first ever impeachment of a U.S. president remains a possibility, since those triggering the event would be the decision makers who would be strategically seeking lower asset prices in key industries (i.e. – telecommunications, banking, etc.); the political diversion could be blamed for a sharp drop.

Of course, war would fail in that regard, as military events are almost always followed by market advances, notwithstanding any brief pullbacks. On the other hand, however, an event that triggers memories of 2001, as opposed to a military incident (i.e. – Iran) could trigger a deeper and more sustained decline.

NEVER forget, however, that the true reasons for market declines (and even precious metal lift-offs) relate only to valuations and fundamentals and nothing else. This is important for knowing to NOT be fooled by hysterical media reporting.

Dow Jones 30: As previously reported, trading is expected to be bound by the upper trend-line which connects the tops from December 2017 – July 2019. The recent new all-time high was again contained by that trend-line, though a blow-off could temporarily spike above it (see Dow chart below).

As for the ideal target for that blow-off, note the following excerpt from the December 2, 2019 report:

“WARNING: At major cycle peaks, I have cautioned that blow-offs occur to nice round headline-grabbing numbers. In this case, 30,000 is such a number, just as 40,000 was the Nikkei’s number to watch 30 years ago. Included in the warning, note that a fancy number serves as a “magnet” that is front-run by smart money.

“Just as the Nikkei’s summit was just over 39,000 on the first day of 1990, could the Dow peak at a level somewhere between 29,000 – 30,000 during the first week of 2020?”

DJIA Daily Chart

Also worth noting as evidenced by these recent years’ declines, the degree of the index’s smashes have been steeper after each subsequent peak.

Major cyclical support is evident in the 18,000 – 20,000 area. I again suggest, however, that one employ strategies that do not require bearish trends for positive results (see STRATEGY/CONCLUSION, below).

Silver:

Throughout the years, I have written of silver’s time cycles and cautioned that the metal will often put in a price low a month before its time cycle bottom; the latter would mark the orthodox low, while the former would represent the unorthodox bottom. From the December 2, 2019 article:

“In the past, however, when I have written of that cycle, the metal’s unorthodox (Elliott terminology) bottom occurred a month early, as it occasionally does, thereby putting in a higher price low that coincides with the time cycle bottom.”

Indeed, as we see from the SLV chart immediately below, the lowest price of the post-September 2019 correction occurred early last month, and I would now complete one’s accumulation of silver-related investments at a higher low (see STRATEGY/CONCLUSION, below).

SLV Daily Chart

STRATEGY

Consistent with the forecasts implied by this article’s title, one may contemplate the following risk-defined strategies:

DOW: I strongly suggest being rid of non-precious metals-related equities and contemplate hedging strategies. Ideally, such strategies would offer substantial protection against sharp declines, while offering a positive return following bullish periods, including bear market corrections.

One must always bear in mind that most days are actually positive during several periods within any bear market.

To achieve such strategic ends, one’s strategy could involve the use of put option combinations, which include both long as well as short contracts.

SILVER:

The chart of the VXSLV (SLV option time premiums) below dates back to 2011 and clearly illustrates the dramatic potential for the appreciation of volatility premiums. Even a move to 30 on the VXSLV level represents substantial profit.

If one has concerns about silver’s downside potential, one can at least note that the VXSLV really had nowhere to go but up, certainly if one believes that the VXSLV and the SLV will trend co-directionally, thereby providing a positive double-whammy for silver option speculators.

The short term charts of the VXSLV (not shown) show that a dip may be possible over the coming days, which would be consistent with a slight drop of 25-40 cents in the metal, owing to silver’s short term overbought condition.

Consistent with this section’s 2nd paragraph, and given silver options’ cheap premium levels, too much finagling looking for a better price would be illogical. Remember, this is the precious metals’ major underperformer. Gold, as always, is ahead of the curve, while others have actually put in all-time highs.

Reiterating last month’s recommended strategies one may look at 1 and 2-year call options. The historically low silver option premiums (see chart immediately below) offer speculators price levels that make longer term contracts competitively cheap when compared to shorter dated contracts; as the bull market ages, longer dated contracts will become more expensive when compared to short term contracts. This is the outcome of the market’s expectation of higher prices for the longer term.

Silver Chart

The fact that this quantitative analysis aligns so well with the price action in the metal is a recipe for substantial profits, if managed correctly.

Also consistent with last month’s suggestions, after a break to new multi-month highs one could look to write options against the long position(s). The written (sold) position(s) would protect capital and potentially even increase the investment’s leverage, depending on how the written position(s) is/are subsequently managed.

The above was written on January 5, 2020.


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Dow Down 10,000, Silver Up $10?

Dow Down 10,000, Silver Up $10?

You can also view this article on investing.com which was published on Dec 02, 2019 03:06AM ET.

The risk is inordinately high that 2020’s top-to-bottom swing in the Dow could be 10,000 points, while silver’s trough-to-peak move could be $10. The analysis hereunder takes an abbreviated technical look at these markets.

Briefly, the fundamentals are summarized by super-valuation and the long term reversal in interest rates; the latter affects price-earnings multiples in a highly leveraged fashion.

Politically, a first-ever successful impeachment of a U.S. president could be the excuse for a shockingly swift decline.

Reiterating from the August report, there is a point at which the powers-that-be benefit from a market bashing since it creates the desired valuations for accumulating politically strategic assets in the global marketplace (i.e. – telecommunications, resources). In this scenario, those powers would be ambushing and betraying Trump who would have misjudged his creators’ interests.

Dow Jones 30: The Aug. 29, 2019 article reflected the view that the Dow had already peaked, or would conclude the year with trading bound by the upper trendline which connected the tops from December 2017 – July 2019.

DJIA Daily Chart

In the case of a continued stock market advance which will have taken place during this year’s second-half, 2020 could portend utter calamity to levels which are, in fact, historically absurd anyway, though the magnitude of the decline from today’s nosebleed levels would usher in panic, both due to the size of the decline, as well as the speed with which it would occur.

I again remind that, per recent years’ activity, the magnitude of the index’s declines have generally increased off of each successive peak.

Expanding triangles within expanding triangles exist since the 1970s (a single such triangle suggests increasing volatility before a drive lower), thereby forming the background for the conclusion of the post-March 2009 major cycle 5-wave advance.

Significant cyclical support exists in the 18,000 – 20,000 area and, as I wrote in the August article, one may employ strategies that are not dependent on this event (see STRATEGY/CONCLUSION, below).

WARNING: At major cycle peaks, I have cautioned that blow-offs occur to nice round headline-grabbing numbers. In this case, 30,000 is such a number, just as 40,000 was the Nikkei’s number to watch 30 years ago. Included in the warning, note that a fancy number serves a “magnet” that is front-run by smart money.

Just as the Nikkei’s summit was just over 39,000 on the first day of 1990, could the Dow peak at a level somewhere between 29,000 – 30,000 during the first week of 2020?

Gold And Silver: From the August article:

“The inter-relationship of the patterns of the two metals confuses investors. The sole observation about which most all investors agree is that gold leads silver due to its liquidity. For trading and investing in these metals, the most important point, however, is that one may glean gold’s wave count by noting silver’s own Elliott pattern, since they are the same. This must be underscored.

“If one can correctly identify silver’s wave count, one would anticipate gold’s major movements…”

Consistent with the above, the relative power in gold is masking its true wave count, as corrections actually occur within up-moves. Silver, however, trades in a traditional manner. As we see from the chart below, silver’s decline from the September peak includes a wave-c sub-division that is timed to bottom perfectly with its 6-month cycle low at month-end.

In the past, however, when I have written of that cycle, the metal’s unorthodox (Elliott terminology) bottom occurred a month early, as it occasionally does, thereby putting in a higher price low that coincides with the time cycle bottom.

SLV Daily Chart

To truly hedge one’s conventional assets, while also being positioned to benefit from a potentially substantial multi-year rise in PM prices, one may contemplate using precious metals ETF options (i.e. – GLD, SLV) and precious metals equity index calls (i.e. – HUI, XAU), in conjunction with equity index options (i.e. – S&P, DIA), to efficiently reallocate exposure to PMs from ordinary (non-PM) stocks, by aiming to benefit from the outperformance of precious metals versus stocks.

Again from the August report:

“These asset classes’ asymmetric performance not only represents the very long term norm, but is also the condition by which one could enjoy exponentially increasing profits, owing to an eruption in these asset classes’ volatility premiums from their respective historic lows.

“Such a strategy would then equate to a highly efficient reallocation of assets from stocks to precious metals, particularly as little capital deployment would be required as compared to the volume of asset turnover required, if one were to sell stocks in favor of precious metals or their equity indices.”

In 2011, gold topped over 1900, having skyrocketed though its 1980 peak above $800. Silver, however, found its summit just under $50, thereby only double-topping with its 1980 (Hunt Brothers) blow-off (see STRATEGY/CONCLUSION, below).

STRATEGY

In deference for the forecasts expressed in the first paragraph of this article, one may contemplate the following defined-risk strategies:

DOW: I would advise being rid of non-precious metals-related equities and contemplate hedging strategies, certainly if the latter includes a mean by which to avoid losses in those hedging positions after market advances, and certainly if small profits could be enjoyed under those circumstances. Such a strategy could involve the use of put combinations which involve long and short contracts.

SILVER:

Speculators may consider the purchase of 2-year SLV calls ~15 – 20% out-of-the-money, as the 6-month time cycle is set to bottom at month-end, whether the price low is now or then.

Generally speaking, one may then look to write options that expire this year against the 2-year calls, sometime in mid-April or so. The written (sold) position may protect capital and even increase the investment’s leverage, depending on how the written position is subsequently managed.