Silver Accumulation Time As The Correction Comes To An End...

Today, we take a fresh look at silver because, after its latest drop, it is getting very close to our target zone, where it becomes a strong buy. It should be emphasized here that we do not have a fixed and rigid downside target, but rather a buy zone where the further it drops into that zone, the more of a buy it becomes. 

The intelligent strategy here is to “average down” -- which means buying as silver enters the target zone… and buying more the further it drops into it. If silver dips below $50, serious buying will be in order for reasons that will become apparent as we examine the charts.

The 5-year chart for silver provides an overall perspective. Here we see that after the parabolic blowoff late in January, the price broke down below the shorter-term parabolic uptrend that had become impossibly steep. It then broke below the 200-day moving average, which had also been rising steeply, as expected. 

This price action damaged sentiment and caused silver to tumble further towards the strong support level. We have been expecting a halt to the correction and the birth of the next major uptrend. 

This chart clearly shows that silver is still in a major bull market, evidenced by its position well above its longer-term parabolic uptrend. It is no coincidence that this parabolic uptrend is rising steadily into the zone of massive support. This zone marks the upper boundary of the gigantic 45-year Cup & Handle pattern we have examined on numerous occasions on the chart, dating back to 1980, which, of course, reinforces its importance as a major buy zone. 

Having breached the support of the 200-day moving average, silver is wandering around in a sort of “no-man's land” just above the strong support.

The more it dips into it, the more of a buy it is, and the position of the parabolic uptrend position suggests it could trade sideways in this area for some time, allowing sentiment to recover before it regains upside traction. This should afford time for us to accumulate silver investments at favorable prices on dips.

Zooming in via the 1-year chart enables us to examine the correction in much more detail. This chart reveals that silver is trending gently lower within the parallel downtrend channel shown and that right now it is short-term oversold at the lower rail of the channel and is therefore entitled to bounce. 

However, that said, it just breached a narrow but fairly important support level at about $62 - $63, which means that this support has now become resistance to any near-term advance.

Looking at recent action in much more detail, still on a short-term 3-month chart, enables us to see that the sharp break below the fairly important support at $62 has been followed by a tight little trading range suspected to be a bear Flag. 

If this is the case, it will be followed by another sharp downleg into the massive support that should mark the end of the correction from the January peak. 

This interpretation is supported by the gap down on heavier volume on the break lower by silver proxy iShares Silver Trust (SLV) (not shown), which has been followed by light volume on the subsequent frail attempt to rally.

So, to sum up, silver’s correction is coming to an end, and it’s time to start scaling into silver investments, aware that it could drop a bit more, in which case buying can be stepped up. 

If it should start to advance without delay, we will adjust our strategy accordingly. Finally, our very long-term chart for silver that goes all the way back to 1980, which has been wheeled out on several occasions over the past year, makes it very clear why silver is now in a new – and very bullish – paradigm.

On this chart, we see that the parabolic runup into late January involved a powerful breakout from a gigantic 45-year Cup & Handle holding pattern. This breakout included a “momentum punch”—the huge, unprecedented spike in the MACD indicator shown at the bottom of the chart—which demonstrates its powerful significance. 

Most traders agonizing over whether silver drops another $5 or $10 from its current price "can't see the forest for the trees.” 

What does it matter if the price goes up into the several hundreds of dollars, which it will due to continually accelerating money creation, as Egon Von Greyerz keeps repeating, and he’s right, and an important message like that is worth repeating. 

What this means is that the current normal post-breakout reaction by silver back to the strong support at the breakout point is presenting an incredible opportunity to buy the sector. So it really isn’t worth splitting hairs about whether it drops a few dollars more before it starts higher again.

In the light of these observations, we will be looking very soon at a wide range of quality silver investments on the site, as has been planned for some time.