Silver investors need to watch this key level

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August 15, 2019 11:36am NYSE:GLD NYSE:SLV

NYSE:GLD | News, Ratings, and Charts

From Taylor Dart

  • Silver has shot higher since breaking out of its prior box near $16.00/oz, but is now headed into multi-year resistance at the $17.20/oz level. 
  • While sentiment has cooled off slightly from the 95% bulls level two weeks ago, the intermediate-term sentiment moving averages for silver are now beginning to head into exuberant levels.
  • Silver continues to be a hold here, but I would not be in a rush to add new positions in either silver or the silver miners at current levels.

While silver (SLV) put up a lethargic 2% return for Q2 2019 vs. gold’s (GLD) 9% return, the metal has come back with a vengeance to start the third quarter. Silver is up nearly 12% as we pass the halfway mark of Q3, and this significant outperformance vs. gold is typically a positive sign for the metal. As pointed out in prior articles, the canary in the coal mine for silver waking up was when it doubled gold’s performance in a calendar quarter after a significant bottom in the metals. It looks like this could finally be the quarter when we see this occur, with the SLV up 12% and GLD up 7% currently. Long-term, this has very bullish implications for silver.

The issue I see currently for silver is that the metal is now running straight into stiff resistance at the $17.20/oz level. The metal was rejected from this area in June of 2018, April of 2018, January of 2018, June of 2017, and April of 2016, and this is the most significant pivot for the metal going back nearly five years. It would be an enormous change of character if silver managed to get through this level on a monthly closing basis, but I’m unsure if it will be able to accomplish this on its first try. As we can see, the metal is heading into this zone after advancing in nearly a straight line, and the metal is likely running on fumes here in terms of this recent rally.

The best thing for the metal here would be a short-term pullback to allow the metal to remove oversold conditions and fill up on gas, and then attempt to make this trip through $17.20/oz with more gas in its tank. Currently, it looks like it’s running on a quarter tank as it tries to bulldoze through an area which has been challenging terrain in its past. For this reason, while I do believe that silver is a hold due to its bigger picture, I do not think this is the ideal spot to be beginning new positions.


So why do I like silver long-term? We only need to look at the monthly chart:

As we can see below, silver seems to be building out a bowl-shaped base within a more substantial base it’s been building since 2014. The most likely scenario here would be a new handle built on the right side of this base which would allow sentiment to cool off a little, and shake out some of the weaker hands. The good news is that the 20-month moving average (green line) has begun to curl higher for the first time since 2016, and silver has reclaimed this level with ease. This area has been a very tough spot for silver since 2017, and any rallies above this level were met with immediate selling pressure. As long as silver can stay above the 20-month moving average on a monthly closing basis at $15.50, I remain bullish the metal long-term and believe any dips of 6% or larger are buying opportunities.


Looking at the sentiment, it is also confirming my view that we’re not in an ideal buy zone here. Bullish sentiment for silver has cooled off a little from the 95% bulls reading we got two weeks ago but is still hovering near 90%. Also, the sentiment moving average has crept up to the 75% bulls level. This suggests that we have three bulls for every one bear for the past 12 weeks – not exuberant, but undoubtedly pretty optimistic. I prefer to be buying when we have an even split between bears and bulls or even more bears than bulls. These types of trades carry much higher win rates. The green zone below shows the ideal place to be entering new positions, and the red region shows the area when it’s best to stop buying. The fact that silver sentiment is hovering in the red zone does not mean it’s a sell; it merely means that new positions carry elevated risk.

Based on silver running up into $17.20/oz resistance in a nearly straight line with signs of over-heated sentiment, I believe that new positions are not the best course of action here. A breakout above $17.20/oz on a monthly close would be a very positive sign, but there’s no guarantee this is going to occur on the first test. The best trade I see here is taking advantage of 6% plus pullbacks towards the $16.20/oz – $16.40/oz area to add to positions, and sitting tight here. While I am certainly open to the possibility of silver breaking out through long-term resistance at $17.20/oz, I think it happens in Q4, not this month.

The iShares Silver Trust (SLV) was trading at $16.12 per share on Thursday morning, up $0.04 (+0.25%). Year-to-date, SLV has gained 0.81%, versus a 6.78% 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.

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About the Author: Taylor Dart

taylor-dartTaylor 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..

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