Spotting the next trend

[Dollar_McGavin]

I’m not sure how much interest there is in this sort of topic, but I’ll throw it out here for now and see what kind of engagement we get.

Warning: This post is not financial advice. Please do your own due diligence and take responsibility for your own trading.

I’ve found that it’s possible to get a very comprehensive picture from just charts and data. It took a while for me to learn but I think I’ve gotten pretty good at it.

For example, let’s take speculative capital. Knowing where speculative capital will flow to next can point to the next head-turning bull market before it happens.

Currently, the lion’s share of speculative capital has flowed into the AI mania, in particular the semiconductor space, i.e. Nvidia and friends. Where will it flow to next?

I believe it will be in silver as it’s more of a speculative investment vs gold. The reasons are many from a secular precious metals bull market to global debt levels to secular commodities super-cycle that started in 2020 to etc etc.

Now I don’t have personal feelings nor attachments to silver, it could just as well as be in fertilizer stocks (which will also do well, IMO ). But I did build up positions in the silver space back when it was down at $20-$22/oz, currently at $32/oz.

This is just what the charts are showing and have been showing for several years now. The charts can tell you everything about the markets, it just takes time to learn their language. And the charts below speak volumes, IMO. Of course, my analysis took more than just a couple of charts, which I won’t go into here or else the post will read like a novel. The point here is that charts can show a whole lot more than just price and relative strength. It can show everything from what inflation will do next year, what the future economy will look like to future trends and more.

The charts below are ratio spreads of the SOXX Semiconductors ETF and Spot Silver prices. The first one goes back to 2011 after the SOXX bull market started and after the silver bear market started post the 2011 peak.

The 2nd chart shows a close up, where it looks like this spread has broken a 12 year long term channel and is about to rollover (downtrend = silver starts to outperform semiconductors).

I suspect that most people won’t even notice silver until there is a head-turning explosive move that ends up on financial media and analysts’ radars. When it happens, I anticipate a lot of speculative capital to exit semiconductors and rush into the tiny silver market.

Of course, I could also be wrong as well, but let’s see what the coming weeks and months bring.

[Clear_Trades]

What’s your average time frame for your trades?

[Dollar_McGavin]

@Clear_Trades

What’s your average time frame for your trades?

In terms of holding period, it’s years. Think portfolio management. I basically get out of one asset and into another (i.e. rotate capital) when there are tectonic big picture shifts, e.g. when commodities bottomed in 2020 after a decade long bear market.

I started rotating out of tech (in stages over months) and into commodities back in 2021 and am still holding these positions. This way of “trading” has been way more profitable for me vs the shorter term swing trading, while being a lot less time consuming. Just for reference, 99.9% of my time (full time managing my company’s portfolio) is spent on analysis, 0.1% is spent “trading” (= entering / exiting positions = a few times per year).

In terms of price charts, analysis is done on monthly, weekly and daily charts. And I’ll sometimes get down to the 1H chart to time entries / exits, those few times out of the year.

I just realized that this is probably why my posts are so long, cause I have way too much time on my hands

[Dollar_McGavin]

@Clear_Trades, how about you?

How long do you usually hold your positions? It’s obvious you have skills, I’d love to know a bit more about your trading style, if you’re willing to share?

[Clear_Trades]

I’m still finding my way. I cautiously think that I am profitable. My main approach has been trading over extensions on the higher time frames. Main issue with the approach is that I need to risk a fairly big amount on these trades if I want to live off of it.

So I am currently honing in on a day trading approach that would allow me to take about 1 trade a day. It looks promising but needs more testing. It would supplement my current swing trading.

I also have had decent success entering with trend trades when they have a good pull back to a trendline. But since I prefer higher time frame trendlines, it takes some time to set up.

Ideally I’ll set up different accounts for the different approaches and stick to a few ones that work best for me.

I’d love to eventually incorporate the kind of trading you’re doing. Sounds like it could be very profitable.

[Clear_Trades]

So to answer your question more directly. I get an opportunity maybe once a month or so. It takes Usually a week or a bit longer to play out. But most of the waiting is for the set up to show up. I am also thinking that I might be not letting it run far enough and I would be better of only taking partial profit at my current tp.

[ausguyforex]

Be wary of the election though if trump wins commodity and everything else will dive

[Dollar_McGavin]

@Clear_Trades

I’m still finding my way. I cautiously think that I am profitable. My main approach has been trading over extensions on the higher time frames. Main issue with the approach is that I need to risk a fairly big amount on these trades if I want to live off of it.

So I am currently honing in on a day trading approach that would allow me to take about 1 trade a day. It looks promising but needs more testing. It would supplement my current swing trading.

I also have had decent success entering with trend trades when they have a good pull back to a trendline. But since I prefer higher time frame trendlines, it takes some time to set up.

Ideally I’ll set up different accounts for the different approaches and stick to a few ones that work best for me.

Thanks for the reply, I can totally relate to your trading style and the challenges you’re facing.

@Clear_Trades

I’d love to eventually incorporate the kind of trading you’re doing. Sounds like it could be very profitable.

Ok, in the simplest form, I’m just trend trading the macro economic cycles.

The real value in my approach however is in identifying what to trade (which asset) not in the “how to trade” (entry / exit strategy). Actually, 99.9% of my “office” time is spent on analysis (knowing what to trade) and the actual entries / exits are mere formalities that are done a few times per year.

To do what I do, it might help to first understand the math behind why I do it this way. For simplicity’s sake, let’s say you buy 1 share of stock at $100, a 1% move up in that stock means you gain 1% or $1. Then let’s suppose that you ride the stock up a long term trend and the price climbs to $1000/share. At $1000/share, a 1% move is now $10 or 10% of your initial $100 investment. You essentially gain free leverage (also known as compounding effect), the higher the price moves the greater the leverage / compounding effect.

We know that profitable trading = minimize losses + maximize profits, i.e. “cutting your losses and letting profits run”

We also know that with every new trade there is a risk of it being a losing trade.

So my approach of applying the “minimize losses” part is to open as few new trades as possible. And spending 99.9% of my time analyzing / identifying the new secular mega trend and getting in ahead of the institutional capital flow is how I maximize the “letting profits run” part.

Being patient for that once a month opportunity is a great approach, I can see it working. My approach is more waiting for that once in a decade opportunity and requires another level of patience.

[Dollar_McGavin]

@Clear_Trades

So to answer your question more directly. I get an opportunity maybe once a month or so. It takes Usually a week or a bit longer to play out. But most of the waiting is for the set up to show up. I am also thinking that I might be not letting it run far enough and I would be better of only taking partial profit at my current tp.

Understood, the challenge I found is that the strongest trending assets don’t give you a once a month opportunity, they tend to run for several months before any meaningful pullback.

The tradeoff is the better the setups / the greater the potential run, the rarer the opportunity. IMO, it’s about aligning this tradeoff with your personality and preferences.

So one thing to consider is the mental aspect of being able to wait longer for the more A+ opportunities in order to have the opportunity to let the profits run longer. Something each trader has to figure out for themselves.

[Dollar_McGavin]

@ausguyforex

Be wary of the election though if trump wins commodity and everything else will dive

Understood and noted, my friend.

However, the cold hard numbers from my analysis say it won’t matter who wins the election. They will need to deal with the same problem, which essentially has only one politically acceptable solution. And the US isn’t alone in this, it will need to be dealt with on a global level.

It all points to the same thing => global stagflation + commodities supercycle

As you know the markets discount the future and so are already reflecting this, especially Asian / European equities, commodities, gold / silver / platinum / palladium, energy, government bonds, corporate / junk bonds and municipal bonds.

[ausguyforex]

I have suspicion I’m been watched . We’ll ke up this morning and two Elon musk x twitter accounts liked my anti trump posts . One of the accounts has a blue tick , I’ve been making a lot of noise on tik tok and my other social media about trump , maybe I should stop - but scary

[Dollar_McGavin]

In addition to the original post, I can also share this chart.

The Indian Sensex has been the 2nd best performing equity index in the world since the financial crisis, 2nd only to the Nasdaq 100. It’s not talked about much outside of India but it is in extreme bubble territory. When this bubble breaks (and it doesn’t seem very far away), all that capital will need some place to go.

India along with China are massive importers of physical silver (and gold). In fact there is not only huge consumer demand but a massive industrial (solar panels) demand such that the futures contracts for deliverable physical silver right now in India (and China) are priced at an equivalent $36/oz vs $34/oz in the US and Europe.

Well I’ll leave it to your imagination as to what that means…

[Laylatrade]

Spotting the next trend for USD or any commodity, highly depends on the US election. What do you all think how’s this reacting the market ?

[Dollar_McGavin]

@Laylatrade

Spotting the next trend for USD or any commodity, highly depends on the US election. What do you all think how’s this reacting the market ?

Sorry but the US president doesn’t control the USD nor commodities markets. There are much bigger forces at play.

Look at the cold hard numbers behind the Japanese Carry trade unwind, then look at US deficits, interest payments and tax receipts. Look at the G7 + European governments and household debt levels and use this lens to view what the G7 + G20 central banks are doing, i.e. look at their actions not words. Then ask yourself why.

Calculate the cold hard real numbers (not conjecture, not emotions, not political beliefs, not intuition, not what politicians say…) and they will lead you to the same conclusion. See my reply further up.

[Dollar_McGavin]

@Laylatrade

Spotting the next trend for USD or any commodity, highly depends on the US election. What do you all think how’s this reacting the market ?

BTW, if you look at the chart below, you will see that the commodities supercycle already started in 2020 post-COVID recovery when Trump was in office. The gold bull market started in 2016, the silver bull started in 2020 and they’ve all continued higher with the democrats in office. The markets are forward looking and have already priced in what I wrote in my previous post.

We’ll soon enter the 2nd major leg higher…watch the soft grains and fertilizer markets as they now fully absorb the impact of the energy market run up in the 1st leg.

[Laylatrade]

I agree on the statement that US president doesn’t control the USD or any market. But the market does get affected by the geo-political news. And USA being one of the major market, it’s election does affect the market sentiment in some ways.

[Dollar_McGavin]

@Laylatrade

I agree on the statement that US president doesn’t control the USD or any market. But the market does get affected by the geo-political news. And USA being one of the major market, it’s election does of the market sentiment in some ways.

Yes, I agree there is some sentimental influence on price from geopolitical events. However, there’s another aspect that needs to be considered. The markets are forward looking, much more forward looking than most realize. I can promise you that market prices right now already have the US election baked in. There are no real surprises here, we’re either going to get Trump or Harris, doesn’t matter who wins, they will have the exact same problem to deal with. In essence this is like shifting chairs on the deck of the titanic.

I’ve got 3 mentors, 2 of them have been doing this more than 50 years (they started in the 1970s) and the 3rd has 30+ years in the game. They all say the same thing, the charts lead the economic data and the geopolitical reality on the ground, it’s not the other way around like most people think.

For example, the charts were already screaming warning signs before the dot com bubble imploded, the GFC unfolded, the COVID recession, the 1987 crash, the 1929 crash & Great Depression of the 1930s and more. My thesis is that most didn’t see it because they are all caught up in trading the mania rather than actually analyzing the situation. Just like everyone is all caught up in the crypto bubble, the AI mania, the S&P 500 and Nasdaq indices reaching all time highs after 12 years of ZIRP. The impact of ZIRP and the shockwave from its sudden end has been making its way through the global financial system, the JPY carry trade unwind along with the collapse of regional banks (Silicone Valley, Signature, First Republic) in 2023 were just 2 in a series of tremors already forewarning what’s coming. There are many, many more signs.

I’ll say again, if you do the math, you’ll see that it won’t matter who wins, the problems have been in the making for years and the charts are already reflecting what’s going to happen. It just unfolds at a much slower pace than the social media blitzkrieg bombardment of information that most people are used to, case in point, most have already forgotten the JPY carry trade unwind and the regional bank collapses of 2023. Matter of fact most don’t even know why the JPY carry trade happened in the first place, hint: it has to do with the Japanese fiscal time bomb, debt-to-GDP currently at +250%.

[ontario]

Last time, when Biden won there was a substantial rally, so I guess it’s not that simple, outcomes are definitely priced in to some degree but potential for shocks coming from the event should not be underestimated.

[Dollar_McGavin]

@ontario

Last time, when Biden won there was a substantial rally, so I guess it’s not that simple, outcomes are definitely priced in to some degree but potential for shocks coming from the event should not be underestimated.

Ok, I’ll bite.

What evidence do you base the rally being from Biden’s election?

According to the charts, the rally started long before Biden was elected

And I never said it was simple, the opposite in fact, it’s way more complex than most think and required years of study.

[Dollar_McGavin]

For those of you I haven’t bored to sleep yet, here are some updates.

@MattyMoney , I’m also addicted to analyzing charts, here are some to add to the chart porn archive

Silver is showing signs of going parabolic, first the daily chart:

Then the weekly chart. A weekly close above the parallel channel would increase the odds of an upcoming parabolic move, but we need to wait for the close on Friday

And finally an update to the SOXX semiconductor vs Silver spread chart in the original post. The ratio broke through the support levels (circled in chart), showing that silver is so far outperforming the semiconductors this week, let’s see if it continues.