Silver gave bulls a scare two weeks ago when it seemed to drop out. That was due to good news from the US-China trade war – any good news on that front prompts most investors to shift money back into risk equities, like stocks. Let’s see what the chart is saying now.
As this chart shows, silver was cruising sideways in a nice consolidation range, and showing some signs that it wanted to head up. Then came the drop, which took silver below the bottom of the range.
Dropping down like that is not a positive sign for bulls. At the least what it means is a lack of interest. At the worst – well, more down might be ahead.
In this case your friendly Gold Enthusiast thinks it means “capitulation” – that last phase of selling before a rest period. Rest periods are consolidation – consolidation in this case being small but steady trading with no real bias up or down.
Some analysts are viewing this latest move as the precursor for the next move up. We don’t really see it that way; we see a market without an influx of new buyers, with price moving sideways. Yes there will be a trading range, but whether the old low is the new high is what remains to be seen. Markets like this are just as likely to slowly drift back up into the previous trading range.
US market action lately has seen investors putting money into high-flyers, dividend-payers and under-valued equities any time there is good news. It’s been a few months since bad news really drove up safe-haven investments. But have investors really given up on silver and other higher-risk safe havens?
Only time and the market know the answer. One thing is for sure though – unless you have a high risk tolerance or can tie up your capital for a long time, it’s not a great time to be throwing a lot of money on silver’s long side.
A last note: Silver has been using the 100-day SMA as resistance these last 4 days. That line is currently rising, but will start heading down soon if current prices continue. It’s something to keep an eye on, especially if silver can’t get back up into its prior trading range.
(DISCLAIMER: The author owns shares in USLV, PAAS and SVBL)
The iShares Silver Trust (SLV) was trading at $15.96 per share on Tuesday morning, up $0.04 (+0.25%). Year-to-date, SLV has declined -0.19%, versus a 17.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.