In our last post we highlighted the extreme Hedge Fund short position in Silver, and showed how price distribution was extremely bullish given this position in prior instances going back to 2006.
Today we are observing that the Greenback is running into extreme resistance with the 23+ 4 Wk adaptive Channels bearing down on price and capping any upside.
We can further see that after a very weak rally our Oscillator is now rolling over and preparing to trigger a cross over sell signal. It's interesting to see the Dollar continue to weaken in the face of all of these rate hikes, but I guess this is telling us that the Trillion $ deficits will be inflationary.
Looking at Silver, following our bullish call last week, we are starting to see technicals support our view.
Please look at this chart.
You can see that today was the 3rd consecutive close over our 23day adaptive Channel. The last 2 times this happened we saw rallies of 1-$2.
Remember, Hedge Funds are extremely short here - On a 18m + 5yr basis their current position scores a miserable 2% - meaning they are at their most extreme short position in 5years. Also remember that they are trend followers, and as we are witnessing a change to bullish technical posture, they will not only be running to cover their outsized short position, but to position long.
This will likely happen as price crosses $18, with Swap Dealers shorting aggressively to position for the next smash. Such is the game, or has been the game in the Silver trading pits since 2011.
The signals in Alchymist tend to trigger early, ahead of traditional technical indicators - and right now they are triggering a buy. For most traditional technicians $17 is a key pivot, and should spark the Hedge Fund unwind.
Lets say you are gun shy, or nervous to buy Silver here as it hasn't crossed $17 yet. What if I offered to sell you Silver at $16 today, a 5% discount - Would you buy it?
If the answer is yes, then you can - and this is how.
1) Buy the July $17 calls for 43cents.
Then Wait for Silver to move either up OR down by 50 cents.
2) If Silver drops to 16.25, sell the July $16 put - You will get approx 35 cents for this. This offsets the cost of your $17calls to 8cents only, but you own Silver at 16 which you are happy to do. If this scenario were to happen, emotionally you will feel like shit, and you wont want to sell that 16 put - But you have to follow your plan and do it anyway! - Remember, this is for those willing to buy Silver today at a price of 16.
3) If Silver breaks above 17, then wait for a move to 17.50 - then sell a $18.50 call. You would earn approx 23 cents on that reducing the cost of the 17call to 20cents. So now you have a bull call 17-18.50 spread for net DR of 20 cents, with upside of 1.30 or 6-1 R/R.
These tactics set you up with 2 favorable situations for metal bulls: 1) Long Silver at $16 with a very cheap call option at $17 that could pay off 10-1 if Silver were to rally back to $18. Or, you are long a call spread with 6-1 payoff.
To make outsized returns you have to Trade like a professional gambler. Only place high odds bets, and manage your chip stack to ensure you have enough "big blind" bets to realize the favorable odds your system is giving you.
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