I'm not sure if metals sell off a little more or if they resume up quickly. But yall have heard me say not to get cute in metals bull markets. Especially ones that have started to break out of long consolidation ranges. Here's the last time SLV broke out of consolidation range on weekly candles.
Notice the action to the left of the yellow circle. Came down from a high, rose back up, but couldn't seem to break above that previous high. Until it finally did in late September 2010. Then, we were given a series of RSI sell signals from October to January 2011, 5 total signals until it finally retraced a bit. Funny enough, it retraced from $30 to $26.. very similar to the levels we are at today. The RSI sell signals fire off when RSI drops below 74 after previously rising above it. In a market that isn't forcefully moving up, one or two of these usually catch and you get a period of RSI resetting. But metals don't play like that. Even after that short lived dip to $26, SLV then went on to top out at $48 over the next 3 months. Also notice the MACD I circled. I usually look for the purple MACD to cross over the yellow MACD average after a buy or sell signal to confirm the change of direction. I can't say I wouldn't have sold here when seeing that. But it was a fakeout. How could you have known?
1. Price touched the +4 ATR Keltner band after having been well above it and then started moving back up.
2. The 8 EMA never even threatened touching or crossing the 21.
3. RSI touched 59, above the average of 53, and never got lower.
Waiting through the end of December and all of January to make sure something doesn't confirm a top is in IS VERY HARD. You're tempted to sell and book your gains. That's why we do this right? Bull markets don't last forever. And we're here because we don't want to be the dorks who just hold forever having to endure drawdowns. We want to book gains and roll them into new promising setups.
So what do we do in the future? Perhaps at the first sign of the technicals seemingly confirming the end of an uptrend, like when the weekly MACD crossed down after a long series of RSI sell signals, perhaps you sell calls on half your position. Maybe at that exact time you buy some put hedges. You make sure your stop is at a level that's not too low that you lose a bunch of gains, but not too high that you get eliminated too early. It takes more active management than you are willing to admit. While I like Elliott Wave levels to determine stops, they aren't foolproof. So maybe the stop was manual with RSI crossing below the RSI average.
But let's take it farther. How would we have known when to sell after it hit $48? It closed that same week at $47 with a long legged doji (open and close close together with long wicks on each side). The next week, by the time RSI threw off the sell signal, price had closed at $34 and RSI was below the mid line. Maybe daily candles could have given more insight, but lets keep it simple.
Simply enough, you have to understand divergence. During the 5 time RSI sell signal firing while price kept moving up, the MACD was decently pulled away from the average line, but there was not spike. It kept the same relative distance the whole time. And it wasn't that much higher than the MACD top from the last bull period. But approaching the $48 high, MACD started to drastically pull away from its average line and was twice as high as the previous high. The histogram spiked to a new ATH. And as it topped, we got the long legged indecision candle to go along with a week of MASSIVE volume. That's a **** ton of signs telling you something is happening or about to happen. I'm not talking about 5M volume when the average is 4M. This was 750M vs 300M the previous week when the average during the uptrend had been around 150M. So we had a crazy volume spike, a MACD spike, RSI in the high 80's, and an indecision candle that isn't a clear sign on its own but does often lead to bearish reversals. The smart thing when you get all of those lights flashing is to sell 50-75%. After the next week reversed hard on even larger volume ($1B), with an RSI sell signal, and MACD crossover, you had your confirmation that it was over. Your sales would have been 50-75% at around $43 and 25%-50% around $35. Did you catch the top? No. But you acted wisely, calmly, didn't get faked out, and made a lot of money.
There are millions of patterns and indicators. Whatever you use, please understand what they are, how they are calculated, and what their actions mean. OFten times, you will feel confident in a decision to buy or sell. But you have to actively watch all of your indicators and be prepared for failure. Even after SLV tanked off its top, it spent 3-4 months in overlapping choppy fashion coming back to $42. Maybe you bought back in. But when you buy back in, you have to be extra aware of the failure point. Especially after such a massive topping pattern. It is more likely the top is in than you get a new high.
Where are we now?
I believe we are in the same place as we were in 2010. Where indicators are starting to show topping patterns on weekly candles. Avg volume on SLV is under $100M weekly with recent spikesas high as low $200M's. We just crossed over the upper Keltner band. On the 2010-2011 bull market, this first happened in November of 2009. MACD is now showing the same rising pattern having recently bounced off the mid line same as it did then. I think we're just now enterting the really fun part. And right now, it's pointing to November. But who knows.
"H-A: In return for the flattery, can you reduce the size of your signature? It's the only part of your posts that don't add value. In its' place, just put "I'm an investing savant, and make no apologies for it", as oldarmy1 would do."
- I Bleed Maroon (distracted easily by signatures)
