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Silver Futures: The Perfect Storm?

By Korbinian KollerCommoditiesNov 01, 2020 01:01AM ET
Silver Futures: The Perfect Storm?
By Korbinian Koller   |  Nov 01, 2020 01:01AM ET
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That’s what many expect. Speculations are getting wild about election results and how they affect the markets. Many other aspects come into play and a heated emotional debate is in play since one’s political affiliation might trigger more emotions…. Stop! Any debate in one’s mind is not helpful for market play. Surprise news typically initiate perfect storms in the market. This is not the case right now. We don’t have certainty in who will be president just yet, but there are plenty of educated guesses already incorporated in market prices. Elections do not come as a surprise. The perfect storm?

With so many aspects influencing the “markets weather”, it is best to keep it simple.

What can price do over the next few weeks?

For one, it might just cruse sideways right through this, having absorbed speculative data already, meaning nothing happens. Secondly, we again might see a sideways movement of price ranges but with increased volatility. This could easily be a trading environment not conducive to easily extracting profits out of the market. Or we get a directional movement, maybe even the perfect storm. Then what?

In a small way, we get a similar event eight times a year, the FOMC meeting. Like elections, an event announced but not transparent in the entirety of its outcome. If you look back at these events you will find one trading strategy to be working out in a high probability for the outcome of a strong directional move. Once the announcement is made markets make a rapid price move in a direction. This move gets faded and bounces back almost 100% to its origin price level before the publication. From there it then again rushes in the direction of its first push. We call this the “One, two, three” play. It is specifically designed for strong directional moves that are preceded by announced news releases as well as for perfect storm scenarios.

Silver, 15 Minute Chart, The perfect storm antidote, the “One, Two, Three” Play:

Silver In US Dollar 15 Minute Chart
Silver In US Dollar 15 Minute Chart

Silver, Weekly Chart, Cracks showing:

Silver Weekly Chart
Silver Weekly Chart

To differentiate between sideways plays and a possible directional play the most helpful tool is a volume analysis. Have a close eye on typical volume averages and possible market participation out of the norm. It can confirm a range breakout. Working with prior volume market fractals in addition, to mark possible points of interest, is very helpful as well.

In the case of Silver, the weekly chart shows that we went from a strong up move (yellow dotted line) into a sideways zone. This was confirmed once the point of control of US$26.76 was broken to the downside. We again traded sideways but have now violated two significant support levels. The Second fractal point of control volume node at US$24.17, and the uptrend line (in green).

This made Silver prices more vulnerable to a perfect storm attack.

Silver, Monthly Chart, Long term entry projection:

Silver Monthly Chart
Silver Monthly Chart

As always, to dissect the market from a top-down perspective in the time frame to not be swallowed in a smaller time frame volatility noise is most important. For our specific case of a perfect storm possibility, the focus should be primarily on volume. Do not be fooled by a strong personal opinion! For example, that Silver prices must go up in times of turmoil it being a haven. When markets plummet they typically drag all asset classes down due to margin calls. Rather watch price and volume behavior and simply budge to the market-leading you into the trade. The great advantage of strong markets is that they are leading and as such help to identify direction and entry point.

Our volume analysis shows a recent confirmation of trend direction change with the break of US$27.22. We anticipate a possibly volatile month of November with high likely entries anticipatory within that month or confirmed long entries in December (January). Our preferred entry zone (yellow circle) is between US$20.17 and US$22.43.

The perfect storm?

Cities prepare for riots, election results might be contested, money is printed in excess, Covid numbers are getting worse and so much more. All this can certainly conglomerate into a perfect storm but it will need a surprise element for getting ugly in a hurry. Preparation is key! Keeping it simple is that key. Planing for the worst and having an action plan is prudent. Debating about the worst-case scenario ad nauseam to the result to be overwhelmed when rapid market moves are happening is not. It requires that discipline to separate one’s emotions about events and the preparation on how to trade them.

Silver Futures: The Perfect Storm?

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Silver Futures: The Perfect Storm?

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