Silver is Setup for a Tradeable Bounce

COMEX:SI1!   Silver Futures
Silver has had a rough go of late, but we have the conditions in place for a Tradeable bounce. Here is the setup.

1 - Very constructive COT position. Commercials 18month score on their net position is a very bullish 76%. This was as of last Tuesday with Silver @ 16.59 - The latest washout will show they added to their longs while Trend following funds continue to pile on shorts into the negative technicals. Even more impressive is the Swap Dealer 18m score of 98% - The banks are positioned for a bounce at these levels.

2 - After a 20Day 11% drop in price Silver saw huge turnover today while forming a Hammer Candle. This occured while price undercut the May Low - This is typical stop-hunting algo action that we tend to see prior to a reversal.

3 - This 20day 11% drop ranks in the 10th percentile of all 20day moves since 2014 - or 872 days. This is telling us statistically speaking that this bear wave is getting long in the tooth.

4 - While price has made new lows, RSI is diverging, telling us that the bear momentum is abating.

5 - Typical price action for Precious Metals is to see selling leading into major economic reports and then reversals out of them. Our bet is that a similar pattern plays out this Friday after non-farm payrolls.

6 - Since 2000 Silver sports a 67% winning % in the month of July.

All signs are pointing to a bounce, however we have 2 things working against us. 1) All technicals are down after this smackdown, so you are trying to call a bottom. 2) This is Gold's soft season where physical buying is quiet prior to Diwali stocking which commences in August. Further adding to this lull is the confusion around the newly implemented GST tax in India that has kept buyers away.

Here is how we want to play it:

1 - Wait for price to reverse and then give a hourly close above the May low of 16.12 - This will give us confirmation of the Bankster Bear Trap.

2 - Then Go Long 1 Future at approx 16.15.

3 - Sell the Sep 26 $17 strike call which should net you approx 33cents. - They delta on this option is .30 currently.

If silver reverses lower after entry close the trade on a hourly close below 15.60 - This would cost you roughly 60cents on the future and you would make approx 17cents on your short call for total risk of 43cents.

Your max Gain is approx 85cents on the future + 33cents on the call = $1.18 which gives us a R/R of 2.75 - 1.

Good Trading to all.

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