Hey There Income Hunters,
I was very confident in the set-up for a downward move that I identified on the monthly silver chart this past Monday
But I didn’t expect an 8% drop to happen so quickly.
For anyone who didn’t see the call, here it is …
Longtime readers of Power Income know how much I respect the Relative Strength Index (RSI) — a very helpful momentum indicator — when it diverges from the price trend.
A bearish RSI divergence is confirmed when the following steps are completed:
You set a new high in price (27.39)
It’s confirmed with a new high in RSI (75.28)
The market price corrects and comes back and makes a higher high (27.98)
RSI does not confirm the strength in the move (68.11)
It’s historically uncommon to get monthly RSI divergences…
However, when you do, it usually signals a decent move …
The question is, what now? Can we expect more downside?
Usually, when a trend reverses, it produces a three-day correction.
I’m now looking to buy silver and am grateful this market didn’t run away from us thanks to the WallStreetBets gang.
As far as the inflation trade goes, I think silver is a great core position to hold.
Here’s why …
Silver not only holds value as “real money,” — which is incredibly powerful on its own right as the world transitions to a new monetary system based largely on digital currency — it is also in HUGE demand for solar and electrical vehicles.
The Blue Wave will increase that demand with incentives in both areas.
Consider, for instance, that President Biden has issued an executive order to electrify the 645,000-vehicle federal fleet in his first days in office and is already spinning up a revised Cash for Clunkers program.
You can see the increase in demand just on the automotive side beginning this year …
How to Play It
The trade I like with SLV volatility a bit rich is to sell the 24 Puts at 2.60 …
I’d be happy to own Silver outright at $21.4. And if not, making over 12% wouldn’t be too shabby either …
Bring It Home
I think there was a good lesson to be learned this week.
It’s the same lesson the Hunt brothers learned in 1980 on “Silver Thursday,” the day the Silver market collapsed …
The exchanges can always raise margin requirements when volatility heats up … and when they do, you don’t want to be left holding the bag.
Let’s see what these wonderful markets have in store for us today…
Live and Trade with passion my Friends,