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Is Silver Poised For Long-Overdue Technical Breakout? FMX Connect Chimes In

Tyler Durden's picture





 

From FMX Connect

FMX | Connect Technical Report: Silver Poised for Large Move

At FMX|Connect we offer little variety in the
technical analysis arena. We leave that expertise to Peter Beutel of
Cameron Hanover fame, one of the preeminent energy analysts of our
generation and someone with whom we are proud to partner.

There
are however two indicators that we feel quite comfortable with. These
indicators are largely based on probabilities and volatility, areas we
are much more at home assessing.

The first one we’ve called our Trend-Vol Indicator.
It measures the risk-reward in being short volatility through its
cycles. Secondly, it often gives a low noise directional indicator which
our readers may know we’ve used with some success during this Gold bull
market. Its methodology is largely home-grown and proprietary: but
suffice to say, it is a concoction of Bollinger bands, historical and
implied volatility correlations, with a dash of skew thrown in.

The
second indicator we claim less ownership of, but have done some
refinement to. It is something called the 6 Week Reversal signal, and if
memory serves, was popular with Connors and Raschke for a while.

Silver
is entering an area right now that puts it on our radar for both
indicators. This is extremely rare, considering the Trend-Vol system is
used for breakouts, and the 6WR is for reversals. Before we get into it,
some basic technical stuff we see in Silver.

Non-Confirmation Low vs. Moving Average Iron Cross

First look at the low of July 1st. While it does not pierce the low of June 27th, it is close enough in our opinion to compare Stochastics and RSI for those days. The lows in both Stochs and RSI on July 1st do not come anywhere close to the lows established on June 27th. To us this is a non-confirmation of the selloff.

Next look at the moving averages right above the market. The 50 day and 100 day come in at 36.73 and 37.08 respectively. Fierce resistance one should think, especially with the 50-100 crossing lower.

So while the non confirmation is less than bearish, the moving averages above are quite daunting to bulls. Right now we are not predicting direction.

 

image

Enter Volatility and the Trend-Vol Indicator

We’ve seen enough from the chart above to just watch and wait. What interests us is the tightness of the Bollinger-bands. Volatility has very little noise in its cycles of movement, and we feel that when these bands widen in opposite directions, it will not be a false indicator of increasing volatility. A directional player would look to go with the direction of the midline (20day MA) when the bands widen in opposite directions. All we can divine at this very moment is that implied volatility is a poor risk reward to be short right here. We’d rather buy strength in Vol than weakness, but shorting it may be a recipe for disaster. And the kind of disaster that Silver serves up is one where there is no exit if you are wrong in options.  Silver is often referred to as the roach motel of options if you’re position is wrong.  Traders check in, but they don’t check out. Here is a previous example of the Trend-Vol system at work.
 
Trend- Vol example: Previously In Gold

Previously Posted on February 24th

Over the past 4 weeks we have said repeatedly that Gold has an excellent chance of a $75.00 to $150.00 rally from the area of 1410.  We picked $1550 as our home run scenario. It is time for an update.

image

Simply stated, if this week closes above 1416, there is a high likelihood of a 75 to 175 move higher in gold over the next 2 months. Although if the indicator hits, we'd expect the move to happen in a more compressed time. The signal does not usually waste time letting you know if it is right or wrong.

The Breakout

image

The Payoff

image

So you can see how it works. The question is, will it happen in Silver any time soon? These triggers happen at most 3x a year in a commodity. On to our other “technical” indicator.

The 6 Week Reversal Indicator

image

The 6WR is pretty cut and dry the way we use it.

1. A market makes a 6 week low where the close is higher than the open.

2. You should buy the next week when it breaks above the previous weeks high (35.14)

3. Your stop loss is near the previous week’s close of 33.69.

It gives a nice risk-reward usually. That trade happened last week, and the favorable risk-reward is no longer there.  When it is right, it is right quickly as shown last week. When it is really right, it gets legs and moves for another 2 to 6 weeks in the same direction. That is what now interests us. So although the 6WR risk-reward aspect isn’t optimal anymore, we are now looking at it as a possible indicator that the Bollinger Band break-out will be higher.

Conclusion

As of right now, our own activity is to sit and wait for the market to show its hand. But when you look at Gold threatening to test that 1550 area for the millionth time, and Silver sitting right under its 50 and 100 day moving averages, we think fireworks will happen soon. Massive rejection or major breakthrough, we’re not sure. But both are on our radar, and we will advise our readers when we believe a trade has been triggered. Good Luck.

 

 


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Mon, 07/11/2011 - 09:23 | Link to Comment espirit
espirit's picture

Massive fail of global economies, what's not to like about PM's unless you don't have them?

Mon, 07/11/2011 - 09:25 | Link to Comment augie
augie's picture

I dont know about you, but i'm walking on sunshine right now. http://youtu.be/UfMUVMPvzDM

Mon, 07/11/2011 - 09:32 | Link to Comment 66Sexy
66Sexy's picture

KIFS: Keep it fukcin' stupid: there's nothin' to think about here.

BTFDYFI.

Silver? Never seen a more bullish case.

Stops are for wimps.

Out on the fine branches is where the sweet fruit is; not clingin' to the stump - waiting for higher prices.

Mon, 07/11/2011 - 11:27 | Link to Comment Ahmeexnal
Ahmeexnal's picture

How will the feudal lords manage the starving sheeple?
History is full of examples.
When TSHTF and the sheeple are left holding the bag of worthless fiat, those holding PMs will be demonized.
Pogroms will be carried out worldwide. The MSM will actually incite the sheeple to denounce, rob, and brutalize anyone known to hold PMs.

Arable land? Sorry, people who are raising their own food are now being thrown to jail:

http://www.naturalnews.com/032960_Julie_Bass_home_gardening.html

Mon, 07/11/2011 - 11:49 | Link to Comment Kali
Kali's picture

This is outrageous, have read of other instances like this one.  Government is the enemy of the people.  Outlawing vegetables?  Fucking planners, I know a few, they are the most horrendous of fascists, usually dumb, stupid, fat, overpaid government employees who trample over people's personal property rights on a whim.  I would encourage all of you to go to this link and sign the petition.  As much as we rail against the Feds, I contend it is your local governments you need to watch.  Just as totalitarian as anything I've seen anywhere and hit you right at home.

Mon, 07/11/2011 - 12:23 | Link to Comment outamyeffinway
outamyeffinway's picture

A little extreme don't you think?

Why don't you give us some of these examples of people being demonized holding PM's? Where they were denounced, robbed and brutalized?

I call bullshit. You're fearmongering. FO.

Mon, 07/11/2011 - 12:31 | Link to Comment Raymond Reason
Raymond Reason's picture

I don't know about PMs.  But during the Holodomor in Ukraine, anyone saving food was prosecuted. 

Mon, 07/11/2011 - 12:35 | Link to Comment augie
augie's picture

http://youtu.be/B8T3QBJvLy0

 

Some more "fear-mongering." The whole youtube channel is rife with it. 

Tue, 07/12/2011 - 21:40 | Link to Comment MGHJFHD
MGHJFHD's picture

Hi there could I reference some of the insight from this entry if I provide a link back to your site?

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Mon, 07/11/2011 - 09:25 | Link to Comment NoRestForTheWicked
NoRestForTheWicked's picture

I'm long SI, guys, so make sure you load up as well.  And tell all your friends.  Let's get this party started and run it up to $ 0.1k.

Mon, 07/11/2011 - 09:27 | Link to Comment MFL8240
MFL8240's picture

Hope they reject both metals and allow for futher accunulation at lower levels.  Of course this would make sense as we are watching the world implode.  None of these charts amount to a hill of beans in real terms, longer than a few weeks.

Mon, 07/11/2011 - 09:27 | Link to Comment 66Sexy
66Sexy's picture

Perfect storm for silver.

Mon, 07/11/2011 - 09:28 | Link to Comment Re-Discovery
Re-Discovery's picture

Massive Rejection?  Where is that catalyst?

I love technical analysis.  It' so . . . 2005.

Mon, 07/11/2011 - 21:43 | Link to Comment fmxconnect
fmxconnect's picture

Lets trade today's settlement straddle expiring in 20 days.  Interested you sell it to us, adn we'll pay you if it doesn't move a prescribed amount during that time, in either direction. interested einstein. Its not technical analysis, its volatility.

Mon, 07/11/2011 - 21:44 | Link to Comment fmxconnect
fmxconnect's picture

dupe

Mon, 07/11/2011 - 09:29 | Link to Comment coppertop
coppertop's picture

silver is not gold

Mon, 07/11/2011 - 09:36 | Link to Comment Sudden Debt
Sudden Debt's picture

And my foot isn't your ass, but when they meet they form the perfect combination.

 

Mon, 07/11/2011 - 10:03 | Link to Comment francis_sawyer
francis_sawyer's picture

..."in order to form a more perfect union" (no doubt)

Mon, 07/11/2011 - 09:42 | Link to Comment tmosley
tmosley's picture

You're right, it isn't.  Unlike gold, which is money, silver is both money AND a highly undersupplied over demanded industrial commodity.

Mon, 07/11/2011 - 10:11 | Link to Comment coppertop
coppertop's picture

You dam right im right

Mon, 07/11/2011 - 10:58 | Link to Comment Thisson
Thisson's picture

Nothing against silver, but no, silver is not money.  Gold is money and nothing else. 

I also take issue with the thesis that silver is a "highly undersupplied over demanded industrial commodity."  We're on the brink of universal default and debt repudiation, and there is a real risk that industrial production could collapse, in which case industrial demand for silver could collapse.  In short, both the bulls ("industrial demand/shortages will cause price increases") and the bears ("silver is money") cannot both be correct.

Mon, 07/11/2011 - 14:21 | Link to Comment Temporalist
Temporalist's picture

When industrial demand dies because of economic reasons the monetary reasons will supersede all.

Mon, 07/11/2011 - 11:10 | Link to Comment Max Fischer
Max Fischer's picture

To say silver is money, one has to completely ignore the way silver was treated during the 2008/09 crisis.  Perhaps you and your circle of goons think so, but the rest of the world treated silver like any other commodity when the SHTF in 08/09. 

- Max Fischer, Civis Mundi

 

Mon, 07/11/2011 - 11:43 | Link to Comment thesapein
thesapein's picture

It does seem silly to say silver is money when there are much better ways to describe its properties whilst money is one of those slippery terms like love. But I also think it's silly to deny others the chance to sub the love of money with the love of silver. Your objection doesn't apply to other currencies when they go in opposite directions of one another so why should it apply to silver or money?

Mon, 07/11/2011 - 14:23 | Link to Comment Temporalist
Temporalist's picture

You clearly don't realize that paper silver is tied in with paper global fiat ponzi. 

Mon, 07/11/2011 - 11:38 | Link to Comment thesapein
thesapein's picture

Silver is not often as good as gold in many industrial applications but is used more often because it is cheaper; like tons cheaper, yo. But don't be embarrassed because even gold bugs forget this.

Mon, 07/11/2011 - 10:11 | Link to Comment Re-Discovery
Re-Discovery's picture

it's better (at least as a trade.)

Mon, 07/11/2011 - 09:30 | Link to Comment Sudden Debt
Sudden Debt's picture

Let's hope not. Oktober is a hughe buying month so if we hold the price low untill then, stocks will be depleted even more and shortages will really propel the price up!

We don't want it to pop to early so it will take longuer for the remaining stocks to be sold off.

 

Mon, 07/11/2011 - 09:34 | Link to Comment critical_mass_soon
critical_mass_soon's picture

yeah! silver bitchez!!!!

Mon, 07/11/2011 - 09:46 | Link to Comment cpnscarlet
cpnscarlet's picture

I thought of SAEs this AM, but I'm just about 2K Oz. I bought some SIVR.

Mon, 07/11/2011 - 09:48 | Link to Comment Yen Cross
Yen Cross's picture

 XAG is bouncing off the roof... I personally would be watching the 100hour sma (35.97) and a support level around 35.74. I have an old ascending trendline just below around 35.29.

These are s/t remarks Good luck...

Mon, 07/11/2011 - 10:00 | Link to Comment Yen Cross
Yen Cross's picture

 the first junk! Yea ya tool..

Mon, 07/11/2011 - 10:02 | Link to Comment chartcruzer
Mon, 07/11/2011 - 10:08 | Link to Comment francis_sawyer
francis_sawyer's picture

The fact that there are only 17 comments thus far suggests that the next break may be UP (even if it proves to be a false break)...

I' be worrie about a breakdown if there were 200+ 'bull comments' on this forum...

 

Mon, 07/11/2011 - 10:08 | Link to Comment All is chosen
All is chosen's picture

All that analysis to conclude that silver might go up ......... or down. Wow!

Mon, 07/11/2011 - 10:59 | Link to Comment Thisson
Thisson's picture

As with all technical analysis/entrail reading: [it will do this, unless it doesn't!]

Mon, 07/11/2011 - 21:40 | Link to Comment fmxconnect
fmxconnect's picture

Actually it also concludes you should buy a straddle and let your gamma run, moron

 

Mon, 07/11/2011 - 10:14 | Link to Comment janus
janus's picture

I hope this picture posting works:

Dammit! how do you post a pic on here?  It's nothing vulgar, in fact it's beautiful.  I paid a lot of money for this turn-of-the-century (the last one before) antique, and I'll be damned if I can't show it off.

 

 

Mon, 07/11/2011 - 10:17 | Link to Comment francis_sawyer
francis_sawyer's picture

@janus

You have to become a permabull (like leo or robo) to gain foto status...

Either that, or you have to cash in some airline miles...

 

Mon, 07/11/2011 - 10:27 | Link to Comment janus
janus's picture

that's a bunch of rot.

it's everyone's loss, really.  How would I go about emailing it to Tyler?  Nevermind, i think I'll figure out how to go about emailing it to Tyler.

I don't think anyone here has ever seen anything so beautiful; it makes Helen of Troy look like a nappy ass ho.

Thanks for saving me some futile effort.

Mon, 07/11/2011 - 10:31 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

Hey Janus, I would like to see it.  Could you post it over on Turd's blog today after he updates it with today's commentary?  Thanks.

Mon, 07/11/2011 - 10:59 | Link to Comment janus
janus's picture

who is this Turd, and what's this I hear about him having a blog? 

Certainly, but I'll need a bit of direction.  I'm new to everything; I know nothing; but I'm willing to learn.

But this is going to seem spectacularly stupid:

I cannot figure out how to email Mr. Durden.  I mean, if i had an address...easy-peasy.  If I don't figure it out soon, I'm sending the pics to Max Keiser.  He'll know what to do with them.

Mon, 07/11/2011 - 10:59 | Link to Comment Thisson
Thisson's picture

Just upload the photo to imageshack or photobucket and post a link. 

Mon, 07/11/2011 - 11:36 | Link to Comment janus
janus's picture

again, most helpless. will investigate

Mon, 07/11/2011 - 11:40 | Link to Comment janus
janus's picture

nope. I'll do something else; I don't like joining things...I'm allergic to it, and these photobucket sites all insist that I wed myself to their cause.

Mon, 07/11/2011 - 12:23 | Link to Comment mick_richfield
mick_richfield's picture

there's a place called bayimg that requires no membership, and lets you specify a code that will cause the image to get taken down.

Mon, 07/11/2011 - 15:52 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

Turd Ferguson:

http://www.tfmetalsreport.com/blog/1470/catching-bid?page=1

Haven't you heard, about the Turd?

Don't you know that the Turd is the word?

The Turd!  People talkin' bout the Turd!

Mon, 07/11/2011 - 10:15 | Link to Comment francis_sawyer
francis_sawyer's picture

@aic

In that case, it's SURE to go sideways... :-)

Mon, 07/11/2011 - 10:16 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

Thank you for the article.  I am keeping my eyes on JPM share price, whch is presently at $39.76 whereas silver is at $36.60.  Many silver analysts far smarter than myself have postulated that if the silver price exceeds JPM share price, then due to the nature of JPM's massive short positions in silver, such an event would indeed "crash JPM."  So, if the silver price crosses JPM share price I will be both buying physical silver hand over fist while shorting JPM.   I also am concerned that the closer the silver price gets to JPM share price, the more likely we are to have some "unforeseen event" that will push down silver (artificially, as always, of course). 

Mon, 07/11/2011 - 10:51 | Link to Comment HungrySeagull
HungrySeagull's picture

Fook that paper share price. Get out before friday close.

Buy and HOLD PM's

 

Mon, 07/11/2011 - 11:03 | Link to Comment Thisson
Thisson's picture

No paper price changes are going to crash JPM.  The only thing that will crash them is if mark-to-unicorn accounting ends, and I'm not holding my breath on that one (the market can stay irrational longer than you can stay solvent, and all that jazz).

Mon, 07/11/2011 - 10:30 | Link to Comment gaoptimize
gaoptimize's picture

Why does NYSE:SIL correlate to the DOW more than the price of silver (like NYSE:PSLV)?

Mon, 07/11/2011 - 10:47 | Link to Comment gatorontheloose
gatorontheloose's picture

dive!!!

Mon, 07/11/2011 - 10:48 | Link to Comment mr66
mr66's picture

Mon, 07/11/2011 - 10:59 | Link to Comment agent default
agent default's picture

Yikes!!! OMG WTF!?! -2.76%??? OUCH !!!11!!1!

Mon, 07/11/2011 - 11:14 | Link to Comment Yen Cross
Yen Cross's picture

  Hmmm where is XAG trading right now?

Mon, 07/11/2011 - 11:23 | Link to Comment eri
eri's picture

Hundreds of words, tens of graphs and indicators, only to end the analysis with:

"Massive rejection or major breakthrough, we’re not sure."

 

What a crap.

 

 

Mon, 07/11/2011 - 11:28 | Link to Comment Yen Cross
Yen Cross's picture

  I call it common sense.

Mon, 07/11/2011 - 21:37 | Link to Comment fmxconnect
fmxconnect's picture

Clown, maybe this will help. We are long gold from 1150 having taken delivery. Are long call spreads currently and will buy Silver above the 100 day moving average. We area bout to take delivery of another piece of Gold for overseas storage. That is what you wanted to hear right. but we will sell the piss out of it in 48 hours if it does not settle above 1557 in gold. Make your own decisions idiot, or learn risk reward and probabilistic trading. 

Mon, 07/11/2011 - 11:55 | Link to Comment Double down
Double down's picture

One does not "dash" skew, something like that is sprinkled,... for a more normal distribution. 

Mon, 07/11/2011 - 21:28 | Link to Comment fmxconnect
fmxconnect's picture

that would be LOG-normal sir! 

Mon, 07/11/2011 - 11:57 | Link to Comment Confucious 222
Confucious 222's picture

And for a little more steam in the "paper vs. physical divergance" model, consider that today Sprott physical  (PSLV) is up 6 cents at the same time CRIMEX paper is down 86 cents.

But of course, there are always mental midgets who will say "but silver is industrial" as if somehow that meant it needs to tank with the Dow.

Divergant, decoupling, CRIMEX imploding, interesting times for the silver bear and ZSL crowd.   

Mon, 07/11/2011 - 12:39 | Link to Comment Re-Discovery
Re-Discovery's picture

No better indicator that the gig is up.

Mon, 07/11/2011 - 13:39 | Link to Comment RockyRacoon
RockyRacoon's picture

Is (20,2) the best setting you can come up with for the Bollinger Bands?  That's customary to be sure, but shouldn't some alternatives be looked at for BB action?

Mon, 07/11/2011 - 21:27 | Link to Comment fmxconnect
fmxconnect's picture

yes they are. while different ratios work better for different markets, adn different market environments work better with different measurements. These cover all markets with equanimity. we choose to take note of different "Normative" behavior for each market, and keep  the yardstick by which we measure  the same length.

Tue, 07/12/2011 - 01:29 | Link to Comment RockyRacoon
RockyRacoon's picture

So, screw the intuitive touch and the fact that all things that move do so for different reasons.  I get the ceteris paribus approach, but a little tweaking makes life worthwhile.

Mon, 07/11/2011 - 13:45 | Link to Comment vast-dom
vast-dom's picture

Silver is taking a beating.

 

While these graphs and technicals seem helpful they are in and of themselves quite useless -- the most value they offer is if enough people actually use them to make large market moves then they are correctly predictive. 

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