What’s Next For The Silver Roller Coaster?

After a frenzy of Reddit induced activity that captivated everyone, silver painfully gave back what it gained. What’s next for the white metal?

As the precious metals’ version of moral hazard, silver tipped over the flowerpot and left gold to clean up the mess. After silver’s short squeeze mania ended in tears on Feb. 2, the white metal gave back 97% of its squeeze-induced gains. Conversely, bearing the brunt of the market’s wrath, gold gave back 237% of the momentum-induced gains.

Please see below:

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Figure 1

As a result, silver is doing what it normally does near market tops: outperforming among comments regarding silver shortage.

Positioning itself for an epic blow-off top, silver’s Feb. 1 surge ended in less than 24 hours. In addition, silver is approaching two triangle-vertex-based reversal points – which could come to a head by the end of February or early March. However, given the two set ups, they could be signaling one climactic reversal or two separate reversals of differing magnitudes. As it stands today, it’s still too early to tell.

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Figure 2 - COMEX Silver Futures

However, supporting the argument of a single blow-off top, I mentioned last week that the iShares Silver Trust ETF (SLV) took in nearly $1 billion in daily inflows on Jan. 29. For context, that was nearly double the previous record.

Please see below:

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Figure 3 - Source: Bloomberg/Eric Balchunas

But because too much of a good thing can often be bad, the frantic buying mirrored an ominous period in SLV’s history.

Please see below:

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Figure 4 - COMEX Silver Futures

If you analyze the volume spikes at the bottom of the chart, 2021 and 2011 are a splitting image. To explain, in 2011, an initial abnormal spike in volume was followed by a second parabolic surge. However, not long after, silver’s bear market began.

SLV-volume-wise, there's only one similar situation from the past - the 2011 top. This is a very bearish analogy as higher prices of the white metal were not seen since that time, but the analogy gets even more bearish. The reason is the "initial warning" volume spike in this ETF. It took place a few months before SLV formed its final top, and we saw the same thing also a few months ago, when silver formed its initial 2020 top.

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Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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