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A Review of The Sunrise For Silver

In recent weeks, I have been talking about Gold and Silver. It all started with the Silver making a low in late September.

This is a review of silver for technicians. However, I would like to demonstrate that the pattern I look for, shows up on a lot of charts.

The reason I started to get interested in the Silver trade was the chart made a new 52-week low for one day. One day. It immediately reversed and went higher. When we talk why that might be a buy signal, it is important to recognize how traders work. If a stock is going to make new 52-week lows, normally that is a major breakdown. Expect the expected. I expected the chart to roar lower. What did happen was the chart did not continue lower. It made a one day low, and anyone with a stop below the prior lows on that day would have been stopped out. But I need my indicators to help me. Other technicians are so savvy, they use the price as the only thing that matters. I think you’ll find my indicator helped me a lot on this trade in concert with the price.

What was also interesting was that it was a reasonably high volume, final low in price. However, the next day just as many shares traded, buying it back up!

There were also other technical signals. The PPO momentum indicator made a higher low in September compared to the August low, but the price was much lower. This is called a positive divergence. The momentum is showing a higher low while price makes a lower low. Momentum must improve in order to change from a downtrend to an uptrend.

Subscribers of the weekly newsletter were being updated about the precious metals setup. I mentioned it on Twitter as well in a conversation on October 6th.

As the set up developed, some associated precious metal charts continued to shape up. The PPO momentum trend line broke on the silver ETF as the PPO line made the first move above it in 5 months!

One of the features I like to notice about the PPO is one familiar setup. I see a long run, followed by a short run. An example would be a long, multi-month weak period (June to August) on the PPO, moves significantly lower, rarely giving an opportunity to even draw a trend line. There was a trend line break in late August (not drawn), but it quickly retreated. Then there was a short 3-week period in September. This combination of a long cycle, followed by a short cycle can be a clue that momentum is changing. I see this on bonds, commodities, and stock charts. It also works the other way. Climbing for a long time, then a really short cycle.

After the long downtrend, that is not the time to give up on the chart, but rather the time to follow it as it was trying to improve by making a higher high on the PPO. However, the September pullback was very brief and the PPO started to turn up giving us this long area from June to early September, then a brief 3-week setup in September. It is the change in duration relative to the trend line that can help us spot an inflection point.

The PPO broke out from below the trend line shortly after the 52-week low, another clue I liked.

From there, the PPO line ran higher, pushing above zero. Above zero means the PPO line now has positive momentum. After the PPO runs above zero and then pulls back like early November, this is a fabulous set up with big potential gains. Why? When the PPO turns down after moving into positive territory, the stock is resting for the next leg higher. The low on the PPO (marked by the red arrow above) is usually matched with the stock making a higher low. This higher low is a low risk entry point. If it turns back down quickly, you can exit soon with a tight stop. If it turns higher immediately, it has usually built up significant momentum to make a big move higher, which is what we saw in SLV as it moved higher every day and is now breaking out to three month highs.

Just on the weekend, I saw tweets from other technicians suggesting there was nothing to see here in Gold/Silver. I had other questions directed towards me asking if I was still holding my gold trade as it was pulling back.

It is the sequence of events that shows up over and over as a stock changes from a downtrend to an uptrend. We don’t have the same price pattern on GLD, but we have the same signature PPO. Note the date October 11 on the chart.

How did it play out?

I have lots more to write about here, but let me show this PPO set up many times before. Here is one, I’ll black out the name, so you can focus on the date. This one had two big boxes. Then a long PPO trend line set up so we could draw a line across the peaks. Soon after, a short PPO area is building under the chart.

How did that work out?

What was that stock? Conoco Philips in October 2020.

Here is a current example that I bought yesterday. If it breaks above the neckline, the stock will rocket. If the PPO fails and starts turning down here, I’ll be out with a tight stop. These are not guarantees, they are just low risk setups.

Here is another one. Freeport McMoRan. Price broke out Thursday right at the risk reward spot on the PPO turn, on more daily volume than the last four months!

Those are just a few examples, but I see it over and over. It’s a pattern of investor behaviour that my eye seems to find.

Here is another reason why I am so pumped on the risk reward for GLD.

If the chart below fails here, I am out quickly because my expectation is now set for the chart to go meaningfully higher. If that does not happen, I am out with very little loss from one of my textbook setups for big gains. In this example, it is a weekly chart!

Was the Gold breakout a surprise for you?

Here was my Market Buzz video

Digging For Gold In The Cellar.

Digging For Gold In The Cellar

It was also in this article on October 25th. The Next Big Move.

But it was on both the weekly videos and the weekly newsletters at GregSchnell.com for the whole month of October.

If you would like to find more of these big picture setups, we try to present them to our subscribers on Gregschnell.com. If you would like to try a two week free trial, you can go to gregschnell.com/explore.Hopefully you’ll find some ideas there!

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There Are Exit Signs At Costco

In a market where stocks are moving higher, this was a wild week. Not just to the upside, but the number of stocks that were smoked by big drops in their stock prices was large this week. I am demonstrating technical tools for exits, as there are exit signs at Costco, but not on a stock. I’ll show you a few of the tools I use to help spot an exit close to the top and how that applies to today’s market.

Last year’s winner, Peloton has been crushed. The stock is now the example for leaving when the trend ends. But the chart offered all kinds of timely clues. The SCTR ranking is not my favorite sell clue for a strong stock, but clearly, that was a change in trend for a stock market darling. The relative strength compared to the S&P 500 (RS) is one of my favorite sell signals. It is shown in purple on all the charts below. When something that was outperforming, stops outperforming, I have to ask myself why not just leave?

In this example, the PPO momentum indicator put in a significantly lower high on the final peak. That is divergence and it can be a helpful tool to discern weakness. In December 2020, the stock surged for two weeks straight, then stalled. One more attempt at a higher high was made in early January and failed. Notice how low the volume was on the breakout to $171.09. There was no interest showing up and we can see that on the volume scale. The PPO rolled down and it was gone! Volume clues can be a lack of interest or it can be the euphoric exit on screamingly high volume.

Here is another example.

Digital Turbine. Lots of interesting clues on this one, but until it snaps down $20, an investor is not sure if the rally can continue or not. Testing a prior high, this one was just vicious. For me, this is a double top. The weak PPO is a real problem and it is turning down right at zero. I would be fearful here. When the relative strength trend breaks as you test a prior high, that is an important clue that the stock is losing power. This made a fresh six month high this week and immediately turned down. I’d be gone. This scale is log, so it gets compressed at the top on a fast moving stock.

AcuityAds is a Canadian ticker, but the chart had a beautiful uptrend coming out of 2020. When it ended, it was literally time to leave. Other than a few positive blips on the daily chart, it has not given a reason to get back in. Look how long ago some of the signals were in place. The SCTR ranking at the top was so strong, it didn’t give a sell signal for three or four months after the peak. SCTR is not my favorite sell signal. It can alert us to relative weakness, but there are many other clues on this chart like the hard breakdown on relative strength (RS) in purple. That signal coincided with a trend line break on price and the PPO momentum indicator weakening. The SCTR went from 99.9 (the strongest stock), to 0.3 which is the weakest stock.

Biotechs are notoriously hard to trade. I’ll use a past winner as an example and then I’ll migrate to some new ones.

Rule number 1: If it isn’t in an uptrend, don’t touch it.

Bluebird Bio was a name with considerable interest years ago. During the entire stock market run from 2020, this stock has been heading south instead of north. Notice the PPO is still down and out. It has not been above zero (it is in negative territory) on the chart. The PPO indicator is a momentum indicator. Momentum is negative throughout this chart. It has periods of ‘respite’, which means – ‘a short period of rest or relief from something difficult or unpleasant’. Let’s just say, anyone owning this got hit hard this week. Bottom fishing in biotech is merciless. This stock had broken the downtrend in price, but just barely.

Which brings me to a couple of names that could be more sensitive right now. BioNTech has been a big part of the world’s Covid response. Let’s take a minute and review the price action in such a dynamic year.

Interestingly, as the vaccines were approved in November 2020, the stock broke out to a fresh new high, then immediately pulled back. Ouch! December gave you a 30% pullback. The stock started the new year with a rally but stalled under the prior high. In April it finally took off to the upside. After going from $110 to $213 in 5 weeks the stock consolidated. The $213.15 high had a $70 range that week, testing a lot lower, but closing close to unchanged. The stock consolidated for a few weeks, then made a new high for two weeks in June. It rolled down for four weeks after the new high. No one said this was going to be easy.

In the next 5 weeks, BioNTech doubled! This run in July 2021 saw weekly volumes surge way higher than the volumes during a similar surge in June. The volumes were also much larger than the volumes in the April run. The huge volume into the end of July was at least a clue that this was getting very frothy. Three up weeks of volume over 20 million! The volume in the April run, was above normal volume where the average was 12 million and it traded at 18 million. Not remarkably high, but showing buyers are buying the stock. The big volume candle in early September without a corresponding breakout was another clue of a stock failing at high volume. That is easier to tell in hindsight.

Staying with the chart above, the PPO momentum indicator broke it’s downtrend in April as the stock broke out to a new high. The PPO uptrend from April to August was strong and the PPO never gave us a lower high as a final signal like PTON did. For me, the trend line break on the PPO and on the purple RS (relative strength) would have me clamouring for the exits in late August. That would have been difficult even then, because the stock was $100 off the highs so 20% of the gains were already gone! The PPO momentum indicator is at its lowest level on the chart. I would let someone else own it.

Which brings us to Moderna. First of all, the SCTR, which is always late on strong stocks, is clearly different than at any time during the uptrend. Without looking at the price on the stock chart, there is a huge change in the relative strength on the chart. After a remarkable surge through July, I’d be looking to get my relative strength trend line on there. Once broken, I’d be out. The stock is up to $500 from $23. If I am looking to find an exit, and I should be after a parabolic run, the break in relative strength would be it.

Moving down to price, The stock price migrated sideways from early August to late September. In mid September, the RS line broke. The PPO trend line broke. If nothing else, I would need to have a stop so it wouldn’t take any more gains away. One fundamental trader, who is on TV, has been buying the pullbacks in his favorite stock. It’s his favorite and largest position because of the up ramp it has been on. Technically, the chart is broken in my opinion and the price bar this week wiped out 30% of the value. The fundamental data won’t catch up with this stock price action any time soon. But investors are voting with their wallets. They are selling, while others are buying the stock based on the story.

I have a list of 40 stocks this week that got crushed while the indexes roared higher. There is a clue there. Most of the stocks were in downtrends already, but some of these are still close to their peak. If you are looking for more ideas on how to keep the profits you have in big winners, you are not alone. I answered multiple phone calls this week from investors trying to figure out how to sell better.

So the title of this article is: There Are Exit Signs at Costco. The point of the article is that we need something to help get out of a strong stock, before we lose the gains. This is not about the Costco stock, just to make sure. It is about having a technical exit signal for trading strong stocks in uptrends.

If you would like to join my newsletter service, you can try it free for two weeks at gregschnell.com/explore. It contains education, where to hunt, where to avoid, when to hunt, when to golf. Give it a try and see if you find value.

Good trading,
Greg Schnell, CMT, MFTA

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The Pitch | Greg Schnell, CMT, Mark Newton, CMT, Jay Woods, CMT with Grayson Roze (10.27.21)

In this special edition of The Pitch, host Grayson Roze sits down with Greg Schnell, CMT (GregSchnell.com) Mark Newton, CMT (Fundstrat Global Advisors, LLC) and Jay Woods, CMT (DriveWealth) as they each bring four buy ideas and one short idea that is frightful. Dive into the action with these seasoned technical analysts as they reveal the themes they are tracking, names they are following, and the charts they are watching to find strength in a time of heightened volatility for markets. Plus, see how they respond when Grayson brings our three experts together as a group for a lively Q&A session to close out the panel.

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The Next Big Move

After oil accelerated from near zero last year, it reached $85 for the first time in 7 years. A few things are really interesting on the chart. I would have expected the purple relative strength to have a lot steeper slope. The second interesting point is that the PPO showing momentum is currently making lower highs but is at the trend line now.

It has been an exceptional run. The real question for everyone now is can new money go in here? All of the inventory tightness conditions are still in play, and perhaps we can add more there. In my opinion, it seems a tough trade.

Other commodity areas that are starting to improve include Corn, Soybean and Wheat. These charts are breaking out of their respective trend lines.

I also like the precious metals here. Both of these charts are breaking their weekly downtrends. I have been covering the precious metals trade for three weeks already. There would appear to be lots of upside as it breaks out to the North.

As nice as crude oil looks, these five other commodity charts also look like they have some significant upside. I like the idea of buying into the start of the next move, rather than playing catch up with the last move. This is especially true in Commodities. While I don’t think the oil trade is over, I think these other ones have less downside risk and more upside.

Good trading,
Greg Schnell, CMT, MFTA

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