I am a firm believer in mean reversion, the proverbial rubber band stretching too far and then snapping. As you know, for fundamental reasons, as well as philosophical, I’ve been a vocal bear on precious metals, having just closed out a short position in AG. Prefacing those beliefs at the forefront, I can tell you that silver, as well as gold, have indeud breached the outer stress bands and might be due for a bounce, perhaps a very big one.
Using my algorithms inside The PPT, which specializes in finding mean reversion plays, silver and gold are being flagged as being OVERSOLD and the inverse ETFs being OVERBOUGHT. Before I show you the statistics, just know that I am not a fool and understand that mathematical models are meant to be broken, when speaking of statistics and correlations. So, I enter this long AG trade, which is now my largest position, with eyes wide open and a bias against it.
UGLD
GLL
Gold Oversold
Silver Oversold
And GLD
Based upon what the algos are telling me, this trade should be profitable within 3 trading days, peaking out in 7. It’s also worth noting that this trade is contingent upon silver remaining down today, therefore allowing the Overbought and Oversold indicators to register on a closing basis.
Technical scores are in a state of constant flux, ranked on 5 core principles.
All categories are ranked on a scale from 1-5, 5 being the highest/best score possible. There are other factors that are built into the scores, which are not seen here. We like to call them “Sub Rosa” and “Sixth Column” factors, that include price fluctuations in all major currencies, commodities and bonds. We’ve tried to fine tune the scores based on historical precedence, all to do with correlation. However, eventually, correlations become unreliable, as time and news events change the trading paradigm.
We’ve adjusted for this by allowing our algorithms to “reset” every 3,6 and, 12 months–which accent our core historical algos. This might sound a little complex, but it isn’t.
It’s a tool that helps me survey the market from a high perch, find things that are hidden that I would most certainly miss if doing it manually.
I am giving this AG trade until next Friday to yield 5-10% on my money.