In this article I noted the fact that:
a) Non-commercial speculators are very “long” silver futures while Commercial hedgers are very “short” silver; and
b) Silver enters a seasonally unfavorable period at the close on 5/12.
For the record, I also pointed out that:
a) Non-commercial speculators are not always wrong and commercial speculators are not always right, but when they are at extremes it can be a useful warning – at least in the short-term.
b) Seasonal trends don’t always persist each and every time around (and that metals can be a dangerous market to be on the wrong side of when they are moving strongly).
One without the other may not be worthy of mention, but when these two pieces are in place, at the very least it gets my attention. Today let’s add one more potential reason for short-term “pause” when it comes to silver.
(See also Where NOT to Invest, Er, Soon (Part 1))
Famed trader Larry Williams developed an indicator a number of years ago that he named “VixFix”. Never being one to know when to leave well enough alone, I not only smoothed that indicator once, but twice to create the indicator you see in the bottom clip of Figure 1. First a little explanation:
*The bar chart in the top clip of Figure 1 is for ticker ZSL which is a double-leveraged short silver ETF. In other words, if silver declines -1% today, in theory ZSL should rise +2% today.
*As you can see in Figure 1, the indicator in the bottom clip named “Vixfixaverageave” (Note to myself: work on created slightly more coherent indicator names) rises as ZSL falls and vice versa.Figure 1 – Inverse (leveraged) silver ETF ticker ZSL with Jay’s Vixfixavergeave indicator (Courtesy AIQ TradingExpert)
I consider “Vixfixaverageave” to be more of “perspective indicator” than a precise timing tool, however, that being said – and as you can see for yourself in Figure 1:
*Reversals that occur above 74 have typically been followed by fairly substantial advances in ZSL (i.e., meaningful declines in the price of silver).
*Reversals that don’t reach 74 but hit at least 67 also tend to highlight at least short-term rallies in ZSL
As you can see at the far right in the bottom clip of Figure 1, the Vixfixaverageave indicator topped out at 77.86 and reversed to the downside on 5/6.
Does this mean that ZSL is about to soar and that ticker SLV (the ETF that tracks the price of silver) is about to tank? Not necessarily. But it is one more reason to think twice about jumping on the silver bandwagon at this point.
Code for VixFix and Vixfivaverageave indicators using AIQ Expert Design Studio:
!VixFix and Vixfixaverageave code
xx is 15.
hivalclose is hival([close],22).
vixfix is (((hivalclose-[low])/hivalclose)*100)+50.
vixfixaverage is Expavg(vixfix,3).
vixfixaverageave is Expavg(vixfixaverage,7).