Bottom Archives | Opportunity Identified

May 14, 2015 | Posted by David Zarling, Head of Investment Research

Silver: It’s Time

When we look for low risk / high reward entries in any investment, we need to be patient, waiting for those times where our risk and reward are well defined. Way back in November, we told you about an upcoming opportunity in Silver. Using cycles, we were looking for a low sometime between November and February along with a downside target near 14.00. Here’s the chart from back in November.

(click to enlarge)

How do we look today?

Price didn’t quite reach 14.00, but we’re not picky. We’re seeing a nice base with lows near our expected cycle low. In addition, we’re seeing price breakout from a 2.5 year downward trendline (dashed green line) and overhead resistance (supply) near 16.50. Adding evidence to our low risk entry is the beautiful divergence in momentum, making higher lows while price makes even lows. This is a significant move with well defined risk. Let’s zoom in and get tactical.

As you can see, the breakout breaches two significant areas of resistance. From a risk management standpoint, we have no reason to own it below 16.20. Our initial upward target is 18ish, but we will be watching price action closely if/when it reaches the solid green downward trendline, which has been significant resistance dating back to the 2011 top in this industrial metal. If that trendline is broken, we could have a rip-your-face-off rally. But let’s not get ahead of price. Let’s let it show us what to do. Trade safe.

Disclosure: The author is long SLV.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. Simply put, you are an adult. You invest based on your own decisions.

November 1, 2014 | Posted by David Zarling, Head of Investment Research

Silver Linings Playbook

Since April, 2011, Silver has been getting crushed. When I say crushed, I mean it. Down over 65%, this precious/industrial commodity has been a wasteland for those hoping it would increase in price. We don’t fight price. Price is the manifestation of opinion and final arbiter of value. Price knows more than we do. We simply identify opportunities. And Silver, curious investor, may be approaching the best investment opportunity of the next decade. But let’s not get ahead of ourselves. There’s likely more downside to come. Between Thursday and Friday, Silver (represented here by SLV, the Silver ETF), continued its relentless downtrend – down another 7%.

We have some targets identified where a bottom in Silver seems logical. See the chart below (click it to embiggen). At first, it may seem a little confusing, but it’s really quite simple. Price moves to equilibrium. The orange annotations mark two measured moves (from the 2011-2013 broken descending triangle and from the 2013-2014 broken descending triangle). Those two measured moves end up within 10 cents of each other. We don’t get picky. The 13.50 – 14.00 range should provide stiff resistance to any further downside pressure. Assisting this logical turning point, is the downward trendline in green. And to help us in timing any potential bottom are some very accurate cycles (annotated in purple). Focus your eyes on only the cycles, you’ll notice they align with many minor and major turning points. Adding everything up, we are going to be looking for a major low in Silver sometime between now and February, 2015. Our price target is between 13.50 – 14.00. Once we reach that level, we’ll be looking for evidence of a change of direction. If/when that happens, I’ll let you know and share with you why this could a be major opportunity.

October 17, 2014 | Posted by David Zarling, Head of Investment Research

Next Week is a Big Week for the Market

The major US markets have been structurally damaged, increasing the likelihood of a large correction beyond what we’ve already seen. That being said, we are keeping an open mind and searching for evidence that we could see a short term bounce in the US market (S&P 500, Dow, Russell 2K). Here are some signs that we’re getting ready for a relief rally:

Russell 2K (See chart below) | Positve candle formation and a daily close above previously broken support (1082). The Russell 2K tends to give early signs compared to the rest of the majors. The basing by this small cap index is a positive development. It is very close to reaching 1100 and closing our Russell 2K short trade. *NOTE: at publication time (close of trading, Friday), the positive candle development turned neutral if not bearish.
50 day Rate of Change (ROC) on the McClellen Summation Index (not shown) | This indicator looks at the 50-day rate of change (ROC) in the Summation Index. It simply compares today’s value to that of 50 trading days ago. Mathematically, it is another way of quantifying the total of the last 50 trading days’ McClellan Oscillator values. When it gets to a deeply negative value, it indicates a longer term oversold condition for the market, one which is difficult to sustain past a certain point. When this indicator turns back up again, the message is that the big oversold condition is waning, and a rebound period is getting started. That is the condition in which we find ourselves now.
The CBOE VIX Index (See chart below) needs a breather | The VIX gets its share of criticism, but in rapidly moving markets it has its place in the toolbox. Research by Nick Colas of Convergex shows that the long term VIX average – back to 1990 – is 20 and the standard deviation around that mean is 6. That means at 26 and 32 you have 2 reasonable levels where the VIX should top out. Now, if you think we are entering a period of real crisis, the numbers shift higher. Typically the VIX averages 28 when things are really bad (think back to the Financial Crisis) and the standard deviation rises to 8. That puts the target at 36 and 44. Bottom line: don’t try to pick a bottom until the VIX gets to at least 26. We reached 26.00 yesterday. *NOTE: at publication time (close of trading, Friday), the VIX closed at 21.99.

The evidence above points to a short term bounce. But as of this writing (close of trading), it appears the bounce may have already taken place intra-day on Friday. To say the least, the market is at a major inflection point. We’ll provide more research, analysis, and if/then game-planning over the weekend. Next week is a big week for the market. Time to do some homework…

RUT trying to recapture previous support now turned into resistance