From Taylor Dart
While silver is likely to punch through weekly resistance at $16.25/oz on a weekly close, a pullback from here to cool off sentiment would not be surprising. This exuberance in sentiment is being confirmed by Rich Dad, Poor Dad author, Robert Kiyosaki who just yesterday stated it was time to back up the truck on silver. While silver is likely to punch through weekly resistance at $16.25/oz on a weekly close, a pullback from here to cool off sentiment would not be surprising.
Gold’s (NYSE:GLD) incredible run since the June lows came without the accompaniment of its industrial brother silver (NYSE:SLV), but this has changed in a big way the past two weeks. Silver has climbed 10% in just eight trading days, and sentiment has gone through the roof. So much so, that Rich Dad, Poor Dad author, Robert Kiyosaki has come out this week suggesting it’s time to back up the truck on the metal. Kiyosaki has been an excellent fade for investors over the past few years, notably pulling all of his money out of the market
and calling for a crash just over a month after the 2016 stock market bottom. The S&P-500 (SPY) went on to gain 40% over the next two years and has never come close to returning to these lows. Both his recent call to back up the truck on silver and the extreme readings of 91% bulls we’re seeing in silver sentiment this week are contrarian indicators arriving in unison. Based on this, I believe this is a terrible time to be backing up the truck on silver, and instead believe buying the dip would be a much wiser move.
Silver has gained significant ground the past couple weeks and looks to be on track to blast through the $16.25/oz level which has kept a lid on it for the past several months. This is a significant bullish development which has me leaning bullish medium-term (6-12 months). The issue is that this renewed exuberance from a sentiment standpoint has now adjusted my view to neutral/bearish short-term. We can take a look at this exuberance displayed in sentiment below from Daily Sentiment Index Data.
Looking at the below chart I’ve built, we can see that bullish sentiment for silver shown in blue finished yesterday at 91% bulls, after four out of five days closing above the 90% level. The sentiment moving average for silver is also above 90% bulls, suggesting that there are nine bulls for every one bear in silver over the past week. This is a significant level of exuberance, and typically this leads to short-term corrections at a minimum. While everyone was out of the water in late May while we sat at 16% bulls for silver, we now have everyone back in the water suddenly, and crowded trades rarely do well short-term.
(Source: Daily Sentiment Index Data, Author’s Chart)
As an example from a similar scenario, the below chart I’ve built shows DSI data for the March through July period in 2016. As we can see, both silver and the sentiment moving average rallied above the 90% level and stayed there for a week, and this ended up being the high for the year for silver. While I am less inclined to believe we are going to see a 20% correction as we got in 2016, I would be very surprised if we didn’t see at least some short-term weakness and a correction of 3-5% short-term.
Source: Daily Sentiment Index Data, Author’s Chart)
For reference, the below chart shows the reading of 97% bulls for silver in July 2016, and how the metal performed afterwards. It was about the worst possible time to back up the truck.
So how does silver look technically?
Silver is attempting to break out above crucial resistance this week at $16.25/oz, and a weekly close above $16.25/oz would be a bullish development medium-term. However, the downtrend line from the past two years comes in just overhead, and I would be surprised if this broke with sentiment at such exuberant levels. When the majority of people have already bought, one can infer that it will likely be challenging to generate enough new buying power to break through a critical level like this two-year downtrend line.
If silver can get through $16.25/oz on a weekly closing basis, I believe that any dips of 5% towards support at $15.00/oz would be buying opportunities. When sentiment gets exuberant, and analysts that have questionable timing records start telling you to back up the truck, it’s time to take a deep breath and be patient for better entries. Impulse decisions with the crowd rarely ever pay off in the market, and this is one of those times for silver currently. The better trade is letting those bulls that are getting greedy back up the truck, and then repurchasing silver off them 3-5% lower as this is the most likely short-term scenario here. While I am bullish medium-term on silver if we can close above $16.25/oz this week, short-term I am leaning bearish until sentiment can cool off.
The iShares Silver Trust (SLV) was trading at $15.35 per share on Friday afternoon, down $0.01 (-0.07%). Year-to-date, SLV has declined -4.00%, versus a 13.48% 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 #9 of 33 ETFs in the Precious Metals ETFs category.
This article is brought to you courtesy of ETFDailyNews.com.
About the Author: Taylor Dart
Taylor Dart has over 10 years of experience in active & passive investing specializing in mid-cap growth stocks, as well as the precious metals sector. He has been writing on Seeking Alpha for four years, and managing his own portfolios since 2008. His main focus is on growth stocks outperforming the market and their peers. In addition to looking at the fundamentals, he uses different timing models for industry groups, and scans upwards of 2000 stocks daily to identify the best fundamental opportunities with the timeliest technical setups. Taylor is a huge proponent of Trend Following and the “Turtles” who enjoyed compound annual growth rates of over 50 percent per year..