Riou
Introduction
This article continues my ongoing MDA breakout research based upon inductive parametric statistics using over 75 variables from across different fields of finance. The model builds on fundamental, sentiment, behavioral, and technical variables using multiple-discriminant analysis [MDA] to forecast changes in price based on the highest predictive variable combinations. Investors who would like to examine this methodology in more detail can watch my SA webinar on the Momentum Breakout model.
Breakout Conditions
Long-time readers of my articles know that I strongly emphasize the value of trading in the most optimal conditions possible and avoiding weak and dangerous trading conditions. In the simplest terms, this means:
- Buy stocks with the strongest MDA Breakout conditions and variables.
- Buy when the Sector for that stock is positive and improving on the gauges.
- Buy when broad Market conditions also have strong positive momentum.
The more of these conditions that are aligned, the stronger the bid up in price that you're likely to experience in your investments. Sometimes you can do very well in an excellent stock that's in a declining sector while the markets are weakening, but that's more challenging and often the gains do not sustain as long.
The Silver Breakout Illustrated
You can start in any order you prefer as you evaluate the condition of your stock, sector, and market condition. Years of documented research shows that the alignment of all three conditions will greatly enhance your returns and extend the duration of your gains.
Gatos Silver Inc (GATO)
Gatos Silver is a nearly $1 billion market cap stock that was one of four weekly MDA breakout selections from last week showing very strong positive variable conditions above 80 to start the move. These numerous breakout variables are combined into scores that measure the strength of momentum throughout the day in 15-minute increments on the daily chart below.
vmbreakouts.com
Not only is Gatos Silver one of many strong breakout stocks I'm highlighting, it's continuing to deliver gains with supportive momentum from the Basic Material sector, the broader market and the US dollar index.
Examining the Basic Material Sector
First, the Basic Materials momentum conditions show the strong positive breakout conditions beginning nine days ago on July 3. The larger the number of basic material stocks that move into positive conditions on my MDA scale the stronger the signal. You can see on the green line that this signal is one of the largest positive moves since February and positive for many stocks.
vmbreakouts.com
While this recent and near vertical momentum breakout move on the gauges could be highly positive for silver, it's important to examine the basic material sector. Not all the commodities in the basic material sector trade on related market factors, and some can be negative even during a major sector breakout signal.
FinViz.com
Second, in the next step we can examine the technical price charts of the silver industry within the basic material sector to see what indicators there may be showing a strong move. Also many technical traders use these price charts to try to forecast price targets independent of fundamental variables. I support nearly all approaches to validating market conditions. While the data may be more limited, the patterns can have a powerful impact on trader sentiment converging at significant resistance or support levels as I will show next.
The daily chart of silver shown below, gives a clear illustration of bullish stair step patterns moving higher along a positive channel from February. You can revisit that first breakout signal again on the Basic Material momentum gauge chart above.
FinViz.com Vmbreakouts.com
Expanding to the monthly chart back to 2002, you can see how silver is moving in a positive channel from 2020 lows toward the highest levels in nearly 12 years. The long-term view of this positive technical channel suggests that prices could reach the high $30s in the coming year. These moves are also inversely correlated to the US dollar.
FinViz.com
As I share the dollar index frequently in our member chat rooms and social media you can see the strong inverse correlation as the dollar weakens and markets rise.
x.com
Examining the Market Conditions
Lastly, I like to examine the market conditions to understand which way the broad fund flows are moving. Buying good stocks while the market outflows are large means it's much harder for even good stocks to get a bid or sustain positive gains. Currently, we're in the largest market skew since the Global Financial Crisis and I have detailed these extremely unusual conditions in a recent market article below:
Yardeni.com Vmbreakouts.com
Conclusion
The market, the sector, and the stock signal for Gatos Silver are all extremely positive through the writing of this article.
The Daily Market Momentum Gauges broke out in a positive signal on July 8 and have entered the most positive signal since January 2021. This means that the largest number of stocks are surpassing the November breakout conditions detailed in my Q3 outlook article above. It also means we are finding breakout stocks just about everywhere and especially among the small-cap stocks.
VMBreakouts.com
The real question now will be, how long will this last and how does it resemble the same patterns and gains as all the prior large breakout moves?
I hope you benefit greatly and I wish you the very best in all your trading decisions.
JD Henning
If you are looking for an incredible community to apply proven financial models ranging from Dividends, to Breakout picks, to ETFs, and Long Term Value consistently beating the markets with double digit returns, then join our outstanding members at Value & Momentum Breakouts
- Subscribe now and learn why members are hooked on the Momentum Gauge® signals!
- You can find any type of portfolio to fit your style with proven results.
- Be sure to see why we have so many positive member reviews!
- Now into our 8th year, we have outperformed the S&P 500 every single year!
See what members are saying now - Click HERE
