This is a special weekly silver report based on the Variable Changing Price Momentum Indicator (VC PMI) from the Equity Management Academy. Based on last week, silver is about to make an explosive move.
The VC PMI AI Weekly Trading Instructions
First Filter: Bearish
Silver closed at $14.98 last week. With the market closing below the 9-day moving average, which is the first filter we use for the VC PMI automated algorithm, it tells us that we are coming into the week with a bearish trend momentum. The algorithm also tells us that if the price closes above $15.21 next week, it would negate this bearishness to neutral. For the bear camp, this is a pivot point or filter, which would negate this bearish trend that we have been in for the past few weeks.
Second Filter: Bullish
As we look at the VC PMI's weekly average price (the second filter) of $14.89, the artificial intelligence is telling us that the market is bullish coming into next week. Closing above $14.89 activates a bullish weekly price momentum and activates the targets above of $15.21 and $15.24. The weekly price momentum indicator is the second filter, which you can use to manage the trend momentum.
The VC PMI also tells you that if silver closes below $14.89, it would negate this bullish trend momentum to neutral. The fact that the weekly price momentum is coming into next week bullish means that the market has activated the targets of $15.21 to $15.24, at which point it recommends to cover any positions you have on a swing basis and go neutral, and then wait to see what the market does.
Harmony: First and Second Filter at $15.21
The 9-day moving average, the first filter, is also at $15.21, so if silver closes above $15.21, it will shift the weekly trend momentum, also to bullish. It looks like silver is beginning to roll over to the bullish camp.
The VC PMI also tells you that for you to use $14.89 as the level to go neutral on any long positions you have. A second close below $14.89 would activate the targets of the extreme below the mean of buy 1 (B1) at $14.66 and buy 2 (B2) at $14.34.
The VC PMI artificial intelligence automated algorithm identifies a specific structure, including the average price and two levels above and below that average price: the B1 and B2 below the average, and the sell 1 (S1) and sell 2 (S2) levels above the average or mean price. This structure identifies for you mathematically a probability based on the buy and sell levels that the market will then revert back to the mean: for B1/S1 the probability is 90% and for B2/S2 the probability is 95% of a reversion back to the mean. We recommend to our subscribers/traders to use this tool to identify the highest probability trades.
The VC PMI Automated Algorithm
We use the proprietary Variable Changing Price Momentum Indicator (VC PMI) to analyze the precious metals markets and several indices. The primary driver of the VC PMI is the principle of reversion to the mean ("Mean Reversion Models of Financial Markets," "The Power of Mean Reversion in Factor-Based Investing"), which is combined with a range of analytical tools, including fundamental logic, wave counts, Fibonacci ratios, Gann principles, supply and demand levels, pivot points, moving averages, and momentum indicators. The science of Vedic Mathematics is used to combine these elements into a comprehensive, accurate, and highly predictive trading system.
Mean reversion trading seeks to capitalize on extreme changes in the price of a particular security or commodity, based on the assumption that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and buy low when an abnormal low occurs. By identifying the average price (the mean) or price equilibrium based on yesterday's supply and demand factors, we can extrapolate the extreme above this average price and the extreme below it. When prices trade at these extreme levels, it's between 90% (sell 1 or buy 1 level) and 95% (sell 2 or buy 2 level) probable that prices will revert back to the mean by the end of the trading session. I use this system to analyze the gold and silver markets.
Strengths and Weaknesses
The main strength of the VC PMI is the ability to identify a specific structure with price levels traders can execute with a high degree of accuracy. The program is flexible enough to adjust to market volatility and alerts you when such changes take place, so one can adjust strategies accordingly. Such changes include when the market breaks out of a consolidation phase or a trend accelerates. Such volatility usually happens when the market has produced a signal at the S2 or B2 level, and the market closes above or below these extreme levels.
The day trading program then confirms that a higher fractal in price has been identified, and the market will move significantly higher, although the same principle applies if the market falls significantly. By the price closing above the S2 level, it indicates that the buying demand is greater than the supply. This means that the market has found support for the next price fractal. Conversely, the price closing below the B2 level indicates that the selling pressure has met demand greater than supply at the extreme below the mean, and prices should revert back to the mean.
The basic concept of the VC PMI is that the program trades the extremes of supply and demand based on the average price daily, weekly, and monthly.
The strongest relationship we find in the algorithm is when the daily price is harmonically in alignment with the weekly and monthly indicators. We call this "harmonic timing." Such an indication produces the highest probability (90%) that the price will revert from these levels to its daily, weekly, or monthly average.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.