#$sil

*The following Premium Post was issued to TLS members mid-day on December 22, 2020.*

This week’s bump in volatility is creating opportunities.

It’s no surprise that we’re seeing a bit more volatility this week. As noted in daily and weekly posts the past few days, some of the major averages in addition to several sectors are now testing key Fibonacci Extension levels. This, in combination with scorching bullish sentiment equates to elevated near-term risk. With that said, any near-term pullback should equate to a buying opportunity.

Presently, the pullback is providing an attractive buying opportunity in a space that we recently added to our radar: silver miners. The set-up is similar to gold miners, but the space may have a little more beta to it — plus, it may get more of a boost from an economic turnaround. Specifically, here’s what we’re doing:

Started buying a position in the Global X Silver Miners ETF (SIL) near ~44.98 and ~44.38; will add more ~43.75 should it get there.

Also eyeing SILJ, the Junior Silver Miners ETF (for even more juice) should it drop to ~15, ~14.87 and ~14.50.

The only other move we’ve made today is to take profits in our Mid-Cap Pure Growth position, RFG, ~205.

If you’re interested in a daily “all-access” view into our money management approach, please check out our site, The Lyons Share. You can follow our risk-managed investment process and posture every day — including insights into what we’re looking to buy and sell and when. Plus, our TLS Holiday Sale is going on now!! So it’s a perfect time to join! Thanks for reading!

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Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June. Traders can look to sell silver in mid-May and maintain a short position until on or about June 23. In the past 46 years this trade has seen silver (July contract) decline 30 times for a success rate of 65.2%. Prior to 2014, this trade had been successful for eight years in a row. Since 2014 this trade has failed to materialize three times. However, it has been successful in 10 of the last 13 years.

In the chart below, the 47-year historical average seasonal price tendency of silver as well as the decline typically seen from mid-May until the low is posted in late June or early July is shown. This May silver short trade captures the tail end of silver’s weak seasonal period (shaded yellow) that typically begins in late February or early March.

I'm lucky that I get a chance to read a lot and converse with really smart market participants all the time. So there are many lessons that I've gotten to learn the easy way, from my predecessors and colleagues. But there are some lessons that damn it you just need to learn on your own. For me one of those lessons was trading stocks near flat 200 day moving averages. And when I say "stock", this can refer to an ETF, Commodity Futures, Index, etc. But when they're near their directionless longer-term smoothing mechanism, you're begging for trouble. If you like headaches, trade stocks near flat 200 day moving averages.

A more recent example can be seen in Gold Miners. This was a group that I loved early last year but our upside targets were hit in the summer. More recently it's been a no touch for me. You can see a very clear downtrend through the end of last year, and now we've just had a counter trend rally. The problem was it rallied right to a flat 200 day simple moving average. I told everyone last week that it's not for us, stay away. This week we are quickly reminded why:

You can see the rally that began late last year ended abruptly right at former resistance from November under $26 over the past couple of weeks. This area of overhead supply just happened to be right at a flat 200 day simple moving average. I've learned the hard way over many years to stay away from these situations. By definition, there is no trend. Our job is to find markets that are trending. The way I approach things, this is priced to perfection. Near these areas you get vicious swings without an identifiable direction. It's a hot mess.

Over the last 2 days, Gold Miners $GDX fell 6.2% while the Junior Gold Miners $GDXJ fell 11.4%. Not only should this not come as a surprise, but in fact should be expected. Violent swings without any trend are commonplace.

So if you take anything away from me or this website it should be this: Stay away from stocks near flat 200 day simple moving averages. Trust me. Save yourself the headache. Also, some people have asked me how to quantify this and what exactly constitutes a flat 200 day moving average, or and how close price needs to be to qualify? Let's just say that if you even need to think about it, it's probably too close. Go find something else!

Cheers,

JC

Silver is Leading Now, Metals Bears seen running for the Hills #silver #gold #dollar #invest

Silver is leading. Bears need to quit fighting this move. Silver futures just printed 17.50 and are going to continue climbing. With a print over 18 I see a LT breakout and close over the 200 day MA. Silver may be going to 30.

Long Metals, Short Dollar, Short Stocks.

Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June. Traders can look to sell silver on or about May 13 and maintain a short position until on or about June 24. In the past 43 years this trade has seen declines 29 times for a success rate of 67.4%. Prior to 2014, this trade had been successful for eight years in a row. Last year, this trade did get back on track and is now been successful in 9 of the last 10 years. 

In the chart below, the 43-year historic average seasonal price tendency of silver as well as the decline typically seen from mid-May until the low is posted in late June into early July is shown. This May silver short trade captures the tail end of silver’s weak seasonal period (shaded yellow). A weakening U.S. dollar caused silver to spike in April, but the dollar has firmed and the spike appears to have run its course.

Not surprising - considering the surge in the dollar since last summer, headline CPI for January posted its biggest drop since 2008 yesterday, falling 0.7% in January. Core CPI, however, exceeded expectations and rose 0.2% last month. The chart below that we've shared since last fall, shows 3 month Treasury yields less headline and core CPI (hashed), which has closely trended with the dollar - but with a several month lag. Despite the rise this month in core CPI, we expect to see more soft inflation data as the move in the dollar is further absorbed downstream.    

That said, we still view the reversal in gold last fall as a leading indicator of the inflation vane shifting north and look back at the more acute 2008/2009 deflationary impulse for reference - which also saw precious metals leading the pivot in the dollar and inflation expectations. This time around, the cycle has been more gradual, broader and shallower - but unfurling with similar dynamics between markets and asset classes. All things considered, we still very much like the prospects for gold and silver this year.

Since exhausting at the end of January, inflation protected securities have outperformed nominal Treasuries, following in the steps of gold and silver that pivoted higher roughly three months before.

Similar to the reversals in reflationary trends going into 2009, the latent pivot higher in the TIP:TLT ratio has also been made by markets such as copper and oil - which bounced roughly 10 and 20 percent, respectively, over the past month. A significant difference this time around has been the steady decline in the euro, versus a more broad and volatile structure of its low in 2008/2009.  

The U.S. dollar index is closing out February near its long-term 50 percent retracement high, which also serves as overhead trend line resistance from the July 2001 50 percent retracement high. As mentioned in previous notes, we expect the dollar to follow the lag in 10 year yields and back into the trough of its long-term range. 

The euro, however, appears poised to follow the current uptrend in U.S. 10 year yields and out of a trough low that's been tested over the past month. Similar to the lagged affect on yields from QE in the U.S. in late 2008, we expect the measures introduced by the ECB last month to begin to buttress European yields and the euro in March.

Outstanding of the oil crash in 2008, we have also closely followed the markets in relation to the supply driven decline in oil in late 1985 into 1986, which was primarily driven by a sluggish global economy while non-OPEC North Sea oil countries had increased production. Although there are similarities to what North American shale production has contributed to the global supply of oil, the 1985/1986 time period has been on our radar for years as a prospective mirrored shoulder in the pattern below of the SPX:Oil ratio. Moreover - and quite dissimilar to 1985/1986, we feel the current move has been primarily driven by the currency markets, although there are similarities in underlying monetary policy that helped fuel a rebound in oil in the back half of 1986. 

While it was the Fed that eased aggressively in the first half of 1986, today it's two of the other major players in the balance of the global economy (Europe, China) that are loosening policy that should support a rebound in oil - as well as those markets that have contributed and correlated with its decline. E.g. - the euro and European yields.