It's been a disappointing start to Q2 for silver (SLV) investors as the metal is up just 6.5% for the quarter while the Nasdaq-100 Index (QQQ) continues higher unabated with what many believe to be significantly deteriorating fundamentals. Unfortunately, fundamentals may be helpful over the long-term, but the technicals typically rule in the short-term, and the Nasdaq has had a much more bullish posture than silver, as it reclaimed its 200-day moving average in early April. Meanwhile, silver has yet to recover this critical level, and silver actually has a declining 200-day moving average after the metal dove off a cliff to finish Q1. The one silver lining for the silver bulls, however, is that this continued weakness is grinding down the bulls and has forced them to toss aside their long contracts in the metal. While we are not yet at what I would consider negative sentiment, we have made a significant step in the right direction. Let's take a closer look below:
(Source: CFTC.com, Author's Chart)
As we can see in the chart above of the silver price (white line) and small speculator's positioning in the metal (blue line), silver continues to try to build out a new base after its sharp plunge. Meanwhile, bullish positioning among small speculators in silver continues to trend lower, and at a brisk pace. Currently, the 1-month moving average for small speculator positioning in silver is down to just 27,000 contracts, less than 40% of the contracts owned two months ago, which was 70,100 contracts at the highs. This is a massive step in the right direction as it shows that the longs are entirely giving up on silver and are now back to their lowest bullish positioning in nine months.
It's important to note that we are still about 20,000 contracts away from what I would consider a buy signal, but this trend looks set to continue regardless of if the silver price does bounce. This is because, despite a 25% rise in silver over the past two months, the bulls are busy putting their money to work elsewhere, and seem to have given up on this trade. As I've noted in past articles, the best thing possible for an asset class medium-term is a dearth of bullish sentiment or bullish positioning, as this leaves many new buyers available when things do improve. On the contract, a flood of bullish positioning and bulls crawling over themselves to get into an asset suggests that there's no one left to buy. If we look below, we can see that the contrarian buy zone would be if we got below 10,000 contracts, and negative positioning would get me very interested in going long the metal.
(Source: CFTC.com, Author's Chart)
If we look at the technical picture, there's no reason to have a ton of conviction here as we have short-term support at $13.60/oz, and strong resistance at $16.70/oz. The next move through one of these resistance areas on volume should tell us where the next real move might lie. Ideally, the bulls are going to want to begin a rally sooner rather than later as the 200-day moving average will start to trend lower if the bulls can't stage a decent rally before the May month-end. This would be a negative development as the silver bulls finally had a rising 200-day moving average for most of 2019, something they've struggled with since 2016.
Based on a further reduction in bullish positioning and sentiment beginning to wane as well, I believe that any dips to the $13.60/oz level on silver have a good chance of being bought. Given that we're in the middle of this range, however, with resistance 5% higher, I don't see any reason to be overly bullish here. In fact, if we were to head above $17.00/oz silver before June, I would view this as a profit-taking opportunity for traders. Patience should pay off for those looking to accumulate silver, but I don't see any low-risk buy setup just yet. Therefore, making any aggressive moves in the middle of this range makes little sense, and I don't plan to do anything currently. Instead, I am sticking with my gold positions as the metal continues to beat most assets and trend above its 200-day moving average.
(Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.)Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 7 "Safe-Haven" Dividend Stocks for Turbulent Times REVISED 2020 Stock Market Outlook- Discover why there is more downside ahead and the Top 10 picks for the bear market.
The iShares Silver Trust (SLV) was trading at $14.27 per share on Thursday afternoon, up $0.35 (+2.51%). Year-to-date, SLV has declined -10.76%, versus a 8.67% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #14 of 34 ETFs in the Precious Metals ETFs category.
About the Author: Taylor Dart
It's been a volatile April for the metals markets, and silver (SLV) has managed to gain back some ground after falling off a cliff in March and registering a (-) 16% return for the month. Fortunately, this bounce is not being met with enthusiasm for the time being, as small speculators continue to shed their long positions, as we have now hit a new 9-month low for the 1-month moving average of long contracts. This is a significant step in the right direction from where we sat two months ago, as we've gone from a reading of extreme optimism to drifting towards more neutral levels as of the April 24th reading. This does not mean that investors should be starting positions in silver or silver miners here, but it does suggest that at the scales are finally beginning to tilt marginally in the bulls' favor. Let's take a closer look below:
(Source: CFTC.com, Author's Chart)
As we can see in the chart above, we have the silver price (gray line), as well as the 1-month moving average of small speculator positioning in the metal (blue line). Currently, we see an encouraging divergence in this indicator as we have seen the price of silver bounce more than 25% off of its mid-March lows near $12.00/oz, but small speculators continue to throw in the towel on their long exposure. This is a stark contrast from what we saw in Q4 and early Q1 in silver, as speculators were actually adding to their positions despite lower prices. Therefore, if this current backdrop can persist with small speculators selling more and more contracts despite higher prices, I would be more confident that any 10% to 15% pullbacks in silver from here would be buying opportunities.
(Source: CFTC Data, Author's Chart)
If we zoom into the chart above a little closer, we can see that small speculator positioning has been more than halved in just two months, from a high of 70,000 long contracts in mid-February to a current reading of 29,200 contracts for the 1-month moving average last week. While this is a significant drop, it's not quite to the levels where we see a considerable tailwind, which occurs when we head into negative territory. Obviously, there is no guarantee that we head back into negative territory in a time of near-unprecedented monetary stimulus, but this would be the ideal setup to suggest that silver might finally have bottomed out. The reason for this is that when the majority have thrown in the towel and given up on their bullish bets, the market tends to move higher to force everyone back in at higher prices.
So what is the best course of action here?
If we look at the chart above, we've got strong resistance at $16.70/oz for silver, and short-term support at $13.60/oz. Given that we're in the middle of this trading range and don't have small speculator positioning in the zone we want for a strong buying signal, I don't see any high probability trade here. However, if we continue to see small speculators shed their long positions and we head closer to negative territory, there's a good chance that the metal will find support at $13.60/oz on a weekly close if we do see a correction. For now, I continue to remain long gold (GLD) but have no interest in starting new positions in silver or silver miners here. While the bulls are disgusted, they're not panicking yet, and I'd prefer to see panic or at least more disgust to start a new position in silver.
Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 7 "Safe-Haven" Dividend Stocks for Turbulent Times REVISED 2020 Stock Market Outlook- Discover why there is more downside ahead and the Top 10 picks for the bear market.
The iShares Silver Trust (SLV) was trading at $14.10 per share on Tuesday afternoon, down $0.11 (-0.77%). Year-to-date, SLV has declined -11.82%, versus a 8.31% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #14 of 33 ETFs in the Precious Metals ETFs category.