Has the Great Unravel Started?

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Last week’s Market Outlook showed a mature 5-wave S&P 500 rally with the implication that risk is rising. We’ve also been keeping track of the 2021 similarity with 2020. Below is an updated year-to-date 2021/2020 S&P 500 performance chart.

Of course I’m not naive enough to expect an exact repeat of 2021, but since investor sentiment is even more over-heated in 2021 than it was the same time last year, the down side risk is elevated and should not be ignored.

Up until late January, I was looking for more up side, but that has changed. I explained why in the February 14, 2021 Profit Radar Report:

“I spent hours analyzing the studies compiled and evaluated since February 1, and 11 of them project risk for the next month, only 2 favored reward. It’s a buying frenzy out there and rational analysis can be trumped by irrational behavior. A blow-off melt up before a return to normal jolts investors back into reality is possible. However, such a melt up is something an analyst allows for but doesn’t bet on.”

In addition to red hot enthusiasm a number of breadth studies even flashed a ‘too much of a good thing’ warning. Below are two of those studies published in the December 16, 2020 and January 17, 2021 Profit Radar Reports. Notice how forward returns of past precedents project weakness for Q1 2021 (red lines, bars).

Shorter-term, the DJIA is still close to the support/resistance trend line highlighted last week. If the Nasdaq-100 falls below 12,982 before rising above 13,476, the decline from the February 16 high will look like 5 waves and likely indicate a trend reversal. The short-term S&P 500 pattern is up to interpretation, but down side risk of the above studies looms over all major indexes.

If you are wondering what’s going on with 30-year Treasuries and TLT, you may find my analysis from the March 15, 2020 Profit Radar Report of interest:

“Distrust in government is a global mega trend, with various government bond markets (especially Europe and Japan) being mainly supported by governments buying their own bonds. The US Treasury market may just have carved out a key reversal and perhaps major market top (which of course maybe postponed by today’s announcement to essentially resurrect QE and buy $700 billion worth of assets). In the land of the blind, the one-eyed person is king. The US equity markets may be the global ‘one-eyed’ go-to option.”

Continued updates and the new 2021 S&P 500 Forecast are available via the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Can The ‘Reddit Rebels’ Overthrow Established Silver Forces?

– “Reddit traders are targeting silver now” – USA Today
– “Silver surges as Reddit traders find new target” – New York Post

– “Silver spikes amid Reddit-fueled frenzy” – Bloomberg

The Reddit rebels movement has all the ingredients for a Hollywood blockbuster. An underdog shows the rest of the world that you can go up against the despised establishment and stick it to them. 

In the case of GameStop (GME), a cast of young novice traders band together to show Wall Street Fat Cats (hedge funds) they are not invincible. Aptly, most of those traders probably use Robinhood (another Hollywood favorite with a similar playbook); take money from the rich (hedge funds) and distribute it among the poor (rookie traders).

Will the same script work in their latest mission to run up silver prices?

Silver soared 13.5% from 1/28/21 – 2/1/21, so the Reddit rebels no doubt felt good about their chances.

Here is what I wrote about silver and gold in Sunday’s (1/31/21) Profit Radar Report, with my conclusion in bold font (the daily silver chart has been updated to reflect current price action):

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

“Silver shot up as much as 8% in Sunday’s session, that’s in addition to its 4%+ rally on Friday, while gold continues to grind sideways. This imbalance has brought the gold/silver ratio to the lowest level since 2014. The charts below plot gold and silver against the gold/silver ratio.

The dashed blue lines highlight gold/silver ratio tops and bottoms. The dashed green and red lines indicate when ratio extremes marked a turning point for gold or silver. Of course, it’s easy to identify extremes in hindsight, and we don’t know if the current extreme will become more extreme, but here are two takeaways:

• Gold/silver ratio extremes tend to mark turning points for silver more often than gold.
• Gold/silver ratio lows tend to mark silver highs.

The daily silver chart shows RSI-2 over-bought with RSI-35 at resistance. There is chatter about silver being targeted by the reddit crew (like GameStop), but based on the above analysis, now is not the time to buy silver. Quite to the contrary, aggressive traders may find legging into a short position more rewarding.”

Allegedly GameStop prices shot up because hedge fund shorts were squeezed out. The Commitment of Traders (COT) report categorizes hedge funds as ’non-commercial,’ which is often dubbed ‘dumb money.’

The green graph in the chart below shows that non-commercial traders (including hedge funds) are long silver (32.44% of open interest) not short. The GameStop playbook of squeezing hedge fund shorts into submission does not apply to silver.

Commercial hedgers, often dubbed ‘smart money,’ on the other hand are net short silver futures (73,412 contracts – red graph). Hedgers position is not extreme and doesn’t prevent further gains, nevertheless Reddit rebels are kind of betting against the ‘smart money’ not hedge funds.

Summary

There are thousands of publicly traded stocks in the US. And there is a general trading frenzy fueled by Federal Reserve liquidity and a brand new Robinhood crowd. 

Like rogue (or freak) waves in the open ocean, there are freak events on Wall Street. The Reddit rebels may have fueled an existing trend, but I would not give them exclusive credit and doubt they can pull that stunt with silver.

This does not mean silver won’t eventually rally again, but not because of a trade group squeezing out shorts

Below is a list of gold and silver ETFs:

– SPDR Gold Shares (GLD)
– iShares Gold Trust (IAU)
– iShares Silver Trust (SLV)

– ProShares UltraShort Silver (ZSL) 

– ProShares UltraShort Gold (GLL)

Continuous updates are available via the Profit Radar Report.