Binary bets of the week: Carry On Regardless and No floor for Silver yet

3 mins. to read

By Dave Evans of

This week we’ve seen the true mood of stock market traders as they drove the benchmark S&P 500 to new record highs, just weeks after July’s snap sell-off.

There is much to worry about in the world right now, with the Ukraine crisis flaring up and Islamic State threating to spark a wider conflict. Still, what matters for the market elephants is not these geo-political risks, but what is happening with central banks.

The Fed have kept their easy money policy for now and the recent poor employment data may have actually become a positive catalyst as it potentially kicks a hawkish policy move further into the long grass. Bond yields are hitting record lows again, especially in Europe, so it’s little wonder that investors are reaching for the higher yield of equities.

Can the market keep this up?

Most certainly, the current environment is relatively benign, with there being an general absence of big one day shocks that often send investors fleeing to the safety of safe havens.

The chart below shows the number of consecutive days since the last 2% drop.

S&P 500 days since 2% drop (based on SPY tracking ETF)

We’re currently at over 90 trading days, but this is far from being the longest run we’ve seen since 2008. It’s certainly up there, but we could have further to go.

S&P 500

Robert Shiller’s Cyclically Adjusted PE ratio is flashing red for over priced, but this is not a precise measurement and cannot pinpoint turning points on the button. Until the market changes its behaviour, it may be better ride the boom rather than stand on the side watching prices go higher and higher. Shiller wrote the book ‘Irrational Exuberance’, but in this case it may pay to take heed of the stock market maxim “markets can remain irrational longer than you can remain solvent”.

There is certainly upside from here, but any gains could be slow, just as there may be a downside cushion until central banks change course.

Betting that the S&P 500 will stay between 2014 and 1969 for the next 12 days could return 314%. Or put another way, betting that by the 3rd of September, the S&P 500 won’t have touched either 2014 or 1969 could return £31.38 from a £10 stake.

No floor for Silver yet

The dollar index has continued its relentless rise in lock step with stock markets.

This move is not just down to dollar strength – weakness in the euro, pound and especially the yen have been a driving force here. Still, it’s hard to ignore the momentum of the Greenback and its impact on currencies and commodities, especially silver.

With much to worry about across the world, it’s surprising to see the lack of interest in commodities, especially as they have traditionally been safe haven plays.

Silver has been suffering in particular as the chart below shows.

The green/ red line represents the skew between the price and its parabolic SAR. A big gap is compared with other gaps in the past to assess the magnitude of the current gap. When the price drops severely below its parabolic, you often get strong buy signals.

However, the current cap is barely registering, indicating that the current down run on Silver is not severe and is in little danger of reversing any time soon. Commodities can be one of the best assets to ride a trend on and this is what could pay here.

A lower trade predicting that silver will close below $19.25 in the next 10 days could return 176% if successful. Or put another way, betting that silver will be below $19.25 at the close on September 1st could return £17.62 from a £10 stake.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.

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