Matt McKinney of Zaner Group uses technical analysis to determine what qualifies as a super trend down and constitutes a full-blown sell signal, as well as the options plays to be considered as a result.
The top three reasons that I'm a silver bear are:
1) For some reason, it is being traded as what I would consider a safe haven.
2) Comex Silver Futures utilize a large amount of leverage, 5,000 ounces per contract. (Leverage can move against you as well).
3) Technically, my arrow chart lines up perfectly in my view.
On the charts below, I have placed my favorite technical indicators. The 9-day Simple Moving Average (SMA, red line), the 20-day Simple Moving Average (SMA, green line), and the 50-day Simple Moving Average (SMA, blue line). I have also added the Bollinger Bands (BBs, yellow lines) and Candlesticks (red and green bars), each bar represents one day of trading on these daily charts.
To qualify for a super trend down and a full-blown sell signal here is what I need. I need the 9-day SMA (red line) to move down and under the 20-day SMA (green line) as both indicators point lower and the market trades below the 9-day SMA. I have that on the chart below.
On top of that, I have a breakout from a Symmetrical Triangle to the downside. I have outlined the triangle with the royal blue arrows on the daily chart below. The arrows formed a sideways triangle or a Symmetrical Triangle. Typically, but not always, the direction that the market breaks out of the triangle will be the direction of your next big move. As you can see, the market broke out to the downside on Saturday, big time.
Daily September Silver Chart
Chart by ESIGNAL
Click to Enlarge
Option Play:
Potential plays that could be considered here and now would to buy bear put spreads with a call as a hedge in case the market rallies drastically against us. Also, I would consider selling deep out-of-the-money calls. Remember, when you sell naked options you have unlimited risk and should have a well-funded account of risk capital.
By Matt McKinney of Zaner Group
