Over the past couple of weeks, we have seen historic moves in the silver market. Silver has been exploding based on the historic pandemic situation. We are now beginning to see this pandemic impact the economy in full force. The government is struggling to produce another stimulus package which is needed in the marketplace to alleviate some of the pressure from the high unemployment rates and the possibility of going into another lockdown. We have already seen the gold market react to this volatile situation with historically high levels. We have hit a $1925 high for gold and silver got up to $24.82 as I write this report.
Silver Market
Given where the silver market is right now, I recommend you take prudent action. If you’re not long and you're looking to get into the market, you want to be careful as the market is extremely overbought.
Acceleration Phase
Silver is trading at $24.42, which is up another $1.57. We have entered into an accelerated phase that could bring silver up to $35 before the next resistance level.
Silver over the past 20 years
(Click on image to enlarge)
The chart shows silver's performance over the past 20 years in US dollars. The gain in the past 20 years has been $17.85 or up 362.90%. In the five years, it is up 56%. In one year, it is up 37.58% and in 6 months, silver is up $4.77. Over the past 30 days, the market has exceeded an increase of 28%. As of today, the close as of Friday was up $4.99 or about 28%. As we compare this to the price of gold, you can see that in the last 20 years, the price of gold has risen almost 580%, so the silver market is lagging behind the gold market by at least a couple of hundred percent.
(Click on image to enlarge)
We are trying to identify an entry point into the silver market that we could handle as silver has entered its new bull market. If you look at the 10-year chart, you can see more clearly the price action in the market breaking out of its resistance level at about $20.25. Once we break out of this level, it activates the target of about $35.
(Click on image to enlarge)
In 2020 so far, the average has been $16.83 and it may be a little higher now that we are beginning this move up in the silver market.
The 9-year average is about $23.08. As of Friday, the 9-year trend-momentum of $23.08 was bearish, since we closed Friday below $23.08. But the VC PMI algorithm tells us that once the market goes through $23.08 and ideally closes above it, that it negates this bearishness and a second close above $23.08 activates the bullish price momentum.
The 9-year Variable Changing Price Momentum or VC PMI for the 9-year cycle is $27.93 which is still giving us a bearish trend momentum for the 9-year cycle based on the fact that the market on Friday still closed below $27.93.
Silver closing above $23.08 is your first reversal that you can use to identify the trend or the price momentum turning bullish. The second indicator is a close above $27.93, which would activate the long-term mean or the 9-year average price of $27.93. This is the price equilibrium and the extreme above this equilibrium is at $43.85 to $64.20. If we close above $23.08 for the second time, it will activate the $43.85 and $64.20 targets for silver for the 9-year cycle.
The alternate count is that if we come down below $23.08, it would activate once again the bearish trend momentum and the targets of $7.16 to -$8.76. I know this is going to cause some concern from traders and our subscribers asking how can the price go to -$8.76. If you remember in the crude oil market in March, the price came down to -$37 a barrel before the expiration of the contract. In the past, zero was the maximum risk in a futures contract, which most believed could not go below zero. We have broken that benchmark and now the futures contract can trade negative, which is incredible. I’m not saying that this is going to happen but these are the numbers that are in place from a mathematical and technical point of view.
9-Year Silver VC PMI Cyclical Outlook
Summary
The 9-year VC PMI trend momentum of $23.08 is bearish.
The 9-year VC PMI of $27.93 is bearish.
A close above $23.08 stop, negates this bearishness to neutral.
If short, take profits at $7.16 to -$8.76.
If long, take profits at $43.85 to $64.20.
(Click on image to enlarge)
As of July 24, the 9-year cycle trend momentum was bearish for the silver market. The silver futures contract closed at $22.97. the market closing below $23.08 is confirmation that the trend momentum was bearish, but the VC PMI also gives you an alternate reading that if we close above $23.08, it would negate this bearish long-term trend to neutral.
On the first filter, it looks like the market is trying to identify the trend momentum: above $23.08 is bullish; below $23.08 is bearish. The market last as we do this report is at $24.35, up $1.49. Therefore, you're beginning to activate $27.93, which is the 9-year price momentum target. This is the second filter for the VC PMI algorithm and is the VC PMI price momentum.
The fact that the market closed below $27.93 means that the long-term trend momentum is still bearish but the VC PMI also tells you that a close above that level would negate the long-term signal to neutral. Once we are able to identify the average price or the equilibrium regardless of whether it's a daily, weekly or monthly price, the algorithm extrapolates for you the extremes above or below that mean. The farther the price moves toward or through those extremes, the greater the likelihood that the market will revert to the mean.
Because silver is trading below the 9-year average price of $27.93, it’s still bearish with $7.16 to $-8.76 as the targets on the downside. Trading above $23.08 activates $27.93 as a target.
You can use this indicator as a GPS to guide your trading and your inventory. Depending on whether you're a day, swing or position trader, this information gives you the opportunity to manage your inventory intelligently in a way that it allows you to build equity and to protect the integrity of your balances.
Trading is very personal since it depends on your personality, your profile for risk and money management, and your skills as a trader. You can use the VC PMI to trade futures contracts, derivatives, stocks, ETFs, or options.
Summary
The gold and silver markets are beginning to react to the fundamental picture revolving around the uncertainty that we are seeing economically as a consequence of the coronavirus. I think the only thing that the central banks and governments are trying to do is to make sure that the markets do not panic. They want to provide the markets with a vote of confidence by supplying a record amount of stimulus money. The federal government and the treasury have decided to become the buyers of last resort in the financial markets and have decided that the way to do that is by printing unlimited amounts of money.
They are not concerned right now with the inflationary potential that this policy is creating. Right now, they believe that it's important that they take control over the financial markets and prevent a credit crunch like we had back in 2008. They want to provide the markets with enough liquidity to be able to make it through this time until we have the pandemic under control, as some of the world, such as Europe and parts of Asia have already accomplished.
Comments
Log in or sign up to join the conversation.