$21. There, end of article 🙂

Of course it’s not the end, but too damn many of you are squirrels and goldfish. So, the above is the BLUF. What I wanted to do in this article is teach you how I arrived at this number, so next month you can do your own analysis.

NO – I do NOT have a crystal ball. NO ONE DOES.

A friend asked me about how we would look at this – so I wanted to go through the steps so anyone can fish for themselves. First and foremost, this number cannot be KNOWN to ANYONE. What we can kinda sorta do here is look at trajectory, wind patterns, pressure – etc to get a “forecast”. With this analogy, we then use the “cone of certainty”. I’m not using crazy high level calc that the meteorologists use, just some good old fashioned observation.

All of the data is on the CME site, we just then download it to a CSV and do our thing with a magnifying glass. This is important for me at the moment because I’m doing futures trading now.

Side note – I’d get to where I was “fully deployed” with miners, and then pullbacks had me selling at losses due to use of margin. I loved BUYING these things, but I had a hard time SELLING anything, as I pictured every single asset going into orbit. I am finding a LOT more find with selling tranches into rising prices and when I think we are close to the top, I’m in like 40%-50% cash. Of issue in the past, when prices were really low, all of these pros were out scooping up miners, and I was in the red and wondering where this cash is coming from to buy. I think I found a little clue, at least for me. I have done extremely well the last week+ in futures. At first I was long overnights, but then I did my back testing of data and well….I abandoned that strategy. I’ve been short gold and silver on this recent pull back and this has helped negate miner’s losses I’ve had. Meaning, as the miner prices get lower, my trading account free cash is not moving negative. This is helping me for when I feel a bottom in the move is in, I can then stop the short on futures, go long, and ride that up with the miners. The problems with ONLY playing miners is that a lot of times there’s overnight fireworks that I would have loved to be part of, but by the time the open at 0830 happens, a monkey hammer took it out.

So with this, I think we might have $20 as a low by next week, but I’m also potentially feeling $21 might be THE low for this cycle. No idea. Let’s dig in.

For those of you who don’t know, I had a second Palisades interview perhaps 16 months ago where I talked about the “silver beat down” and “silver recovery” periods around OpEx. It starts around 1:16 in and goes about 6 minutes.

This “theory” showed 18 months of data where when silver was range bound, there was a pattern. It seemed to end Dec 2021, to an extent. I think it was something like 4-5 weeks after my interview. Note the big green circle to the right with the missing up move? That was the end of the “recovery” trend.

I also went through this type of thing with Chris Marcus on Arcadia. Dude is just as genuine off camera, by the way. One of the good ones we have in the community! With this, about 30 minutes in I walk through what I’m going to look at below.

Furthermore, I did a two part series on TA, where here was part 1, and here was part 2. In it, I found that TA is mostly useless when it comes to the macros, however, in the ABSENCE of macro events, I think it works quite nicely at times. With the OpEx stuff, it happens near the end of the month. And, all of the important news is usually towards the beginning of the month. You could potentially see periods where we went into the beat downs may have been where there was a final catalyst to push price lower, but no macros to help recovery. For example, you could be in some sort of compression chart like a triangle, where buyers and sellers are fighting over momentum – and a big announcement on earnings comes out as a massive win. A TA guy would point to the triangle and say, “see!”. Well, the issue is that the triangle did not tell you directionality. An Ascending triangle might convey that buyers are more confident – and an earnings win can send it higher. Likewise, the confidence may have been bluster, which then on an earnings miss would go lower – which is how you might get a 60/40 or 70/30 up with that pattern.

Where I find it particularly useful is with approximate lines of resistance and fib. You can see on a chart where the battles are going to be. Now, if a macro event came out that said, “gold miners across the world shut down!” – that could spike gold tremendously, and no chart trick could have accounted for it, no matter what cycle guy or shaman you talk to. The cycle guys to an extent on monthly stuff could simply be using the COMEX monthly data like I was for the beatings. It’s not because it’s day 15 of the red moon, it’s because volume is drying up in the current contract month and people may want to rollover, but maybe the liquidity in the next month isn’t that great either. Maybe they wait a few days? I believe this is what I saw a lot with the downward pressure every month when we were RANGE BOUND. A friend of mine tried looking this periodicity up and didn’t find a trend.

Well, with the charts I’ve been doing, you might have to account for where you are in the cycle. 2011 spikes skewed everything up. So maybe you only look in that period to confirm what I was saying?

Anyway – what I wanted to do with this is GUESS where it might be on OPEX, which is the 4th to last trading day of the month. In this case in Feb, we are looking at 2/23. This means you have less than a week. My preliminary guess is that we are range bound between $21.25 and $21.50. But let’s now consider items of evidence.

With the recent silver chart, you can see we are at REALLY low RSIs on the daily. This might be an attractive buy point for some. You could make the argument that silver is bull flagging, and will resume its move up soon. When you look at the Fib .5 and the 200dma, they are both at $21.07 on my chart (CFDs, not futures, I need to fix that). What you also want here is a HIGHER LOW to resume the bull. The recent higher low was just under $21. $21.50 matches up to some lines, but it does appear to be rather weak resistance. I played short on that from $21.60 to $21.25 overnight and woke at 3AM and cashed out a few contracts then went back to sleep. I put on another short this morning at $21.16, and I may get stopped out – but I’m doing this analysis to see if I should get out. I might give back some overnight gains, but I think $21.50 won’t hold, and I see $21 being the magnet.

In the second TA piece I linked above, Vince Lance had commented on my analysis that it was called “strike pinning”. So there is knowledge about this in the industry, and I independently stumbled upon it.

IF it falls below $21, there’s strong resistance at $20, but it could go from $21 to $20 in a hurry. I believe that would provide a MASSIVE reversal of beach ball underwater, so you have to be careful shorting any of this and not get too greedy. IF I don’t get blown out the next few days, then my bet is perhaps $20 is in sight, but if I have buy backs set at $20.25, I get $.90 of a move, and don’t have to worry about missing a great move to $20.15 by being too greedy and waiting to buy back at $20.05.

Getting the data…

On the CME page, go to Data –> Volume and Open Interest –> Metals –> Silver Option

Highlight all of the data in the table and put it into Excel

What I am caring about now are calls and puts SOMEWHERE near the price we are now. So now I have to “process” the data by removing a lot of the garbage calls and puts with no volumes at ridiculous prices. I am also going to remove some higher items here at the $.5 increments with not a lot of volume. Going to stick with the $.25 increments.

I copied the worksheet and used the first one for calls, and the second for puts. What THIS is telling me is that on 2/23, the banks would love for futures to finish at or below $21.00. If they finish right on them, no one is going to exercise the calls due to the premiums.

With puts, we do the same from the other direction. Remove the ridiculously low ones, that might be there in the event of a stock market crash.

With the put side of things, $21.00 is also jackpot.

To me, the evidence is LEANING towards a final price on Thursday 2/23 at 1:25 Eastern time at about $21, give or take a few cents. This method burns the most puts and calls. Everything from now until then may be a wash.

Currently, my $21.26 short looks like a stupid call an hour ago given a recent price recovery. However, I made a small fortune overnight and can let this one go for awhile. What I would probably be looking at would be to buy back at $20.97 or so at some point. This gets me a $.20 move with two micros, but I don’t see a massive risk here of going much higher in price. Sure, it can, but this looks to be a lot of chop right now. So, I’ll set my buy back at $20.97 next week and not think much about it. Could I get blown out to $22? Sure, but this will have my miners going up too. So I can lose on the short, but win on the miners, which defeats the purpose. However, with the economy the way it is, I feel there is a possibility of a bottom dropping out any day, and with that, I’m comfortable having some micro shorts on at $21.16. There’s risk here, but it’s risk coming from banked gains. Closer to the time of OpEx, if $21 is looking to be where we go, I’ll buy back closer to $21 and get the hell out for a few days. Then? The “recovery” period where I will potentially re-evaluate and MAYBE go long for the next month and next leg up, if it comes. Given that $21 will be at the .5 fib and 200dma, and just above the last higher low, I can see a STRONG move up from this platform – but that is conjecture and probabilistic guess work. Remember, 200m oz deficit of silver last year is the underlying macro you cannot look away from. This APPEARS to be a “healthy pull back” after a several month run up. Most of you don’t understand the saw tooth moves up in the bull – and this is part of it, I believe.

So there you have it…$21 seems to be in play, with a possibility of $20 and a slim chance of $22. IF $21.50 can’t hold, $22 is definitely the next magnet.

While the $21.16 short to me doesn’t seem great at the moment – it’s there to protect against a bottom falling out to hedge my miners. IF I had no miners, I would not be in silver at the moment and would let them duke it out themselves.

None of this should be investment advice, I’m just a guy seeing some patterns and wanted to convey to you how I analyzed this situation.

End note – I get things right, I get things wrong. I will never delete this post, as it is a record of my thought process, and NOT a crystal ball projection you should bet your kid’s college fund on. Do your own due diligence and research. I could be VERY WRONG with this. I am not in a “perfect record” profession here with this side gig – it’s about finding probabilistic opportunities, letting winners run, and capping losers quickly. Live to fight another day. In this scenario, you can be “right” 40% of the time and make a goddamn fortune. This isn’t about being RIGHT. It’s about understanding events, probabilities, and the research that goes into potentially finding a winner. Ideally, I want a VERY BIG winners, and VERY small losers.

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