It’s all starting to sound like the global warming scam. 

‘It’s only ten years before all the ice caps will be melted’.  Problem is, it’s only been ten years for at least 40-years!

Note:  For a total evisceration of the AGW narrative (or hoax), Tony Heller has done an excellent job.

Which brings us to silver and the boogeyman of ‘hyperinflation’s just around the corner’.  It could be the latest false narrative that’s not panning out.

At some point, the dollar will go to zero.  That’s well understood by anyone with a modest amount of financial knowledge.

It’s what happens before that; that’s what’s important.

Even J. Bravo, is starting to think it may not be a slam dunk to dollar zero.  He had a guest on a while back that got howls of disapproval with his deflation (first) assessment.

Not saying the premise is right.  Just saying when there’s that much of a consensus (hyperinflation), it has a nasty habit of not coming to fruition.

As always, anything can happen.  We could get hit with a solar flare or a massive volcanic eruption throwing everything out of balance.

Matter of fact, both of those are highly likely right along with a near earth miss, asteroid passing within 13,000 miles … tomorrow.

In the meantime, we’ll focus on typical market behavior.

The last update stated:  “Barring any additional upside, the expectation is for price action to retrace and test the wide, high volume chart areas.”

Fast forward to now.  There was just one more blip higher before silver began its correction in earnest.  This is normal and expected market behavior. 

The chart shows there’s potential to go all the way back to support levels at the 17-area.

However, it’s also possible we’ve seen a top and silver’s headed to new lows (time stamp 3:10); That’s completely opposite the consensus and potentially a more likely result.

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The silver bulls may have been sufficiently trapped.  If so, they’re subject to a beating via reversal.

The markets aren’t friendly and silver’s one of those that never takes prisoners.

As mentioned in an earlier post, even trading genius Ed Seykota (of Market Wizards fame), early in his career, was impaled mercilessly by silver spikes.

As always, anything can happen and some new demand come in to lift SLV higher.

However, when you look at the typical form of a silver topping pattern, it looks like we’re there.

If there’s a caveat, the chart pattern insert is on a weekly basis and the current chart is daily.

Markets are fractal.  Patterns can (and do) repeat at all time-frames.

Barring any additional upside, the expectation is for price action to retrace and test the wide, high volume chart areas.

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

From bottom to top, silver has exploded over 147%, in less than three months.

In the process, a wide high volume trading range has been created.

So, what happens now?

A likely answer is, go back to silver price action under similar conditions.

That behavior can be summed up as a ‘test’.  It’s the nature of the markets to test wide, high volume, (near vertical) price action.

Just what does test mean?

The financial pundits will typically call this type of action ‘consolidation’, but that’s a misnomer.

A test can pass or fail.  If the silver market retraces from here … or goes a little higher before a retrace, the nature of the retrace price action is important.

Using the SLV chart shown at the bottom of this post, we’ll be looking for how SLV behaves if and when it comes back to the resistance area … which may now be support.

The last update on silver hinted at a potential new low coming some time after the current run.  ‘Some time’, may be months or years.

Let’s step aside briefly and discuss market reality:

Completely contrary to what is espoused in the financial media, money is not ‘at work’ in the markets.  It’s ‘at risk’.

Upon entering a position, any position, a tacit agreement has been made by the new entrant and the other participants.

That agreement is to voluntarily walk into what’s essentially the Roman Coliseum.

The longer you’re in the ring, the more chance you have of being gored, mauled, or eaten alive.

So, how does one minimize that risk? 

The answer is (from this firm’s perspective), wait for the set-up, no matter how long and then move quickly.

Here’s a prior update that’s a good example of how a trade opportunity was identified seven months in advance; then executed for a 155%, gain in just five days.

End of digression

As for silver, it looks like time to wait.  Bullish sentiment at this juncture may (if not already) have reached an extreme.  Price action typically reverses at high sentiment levels.

The SLV chart has two prior reversals identified.  Those reversal actions are similar but not exact.  If silver is to re-test the recent lows, we’ll be looking closely at how it behaves as it returns to potential support levels.

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Let’s take a look at silver’s upside breakout.

First off, silver spikes as seen in the chart below, are nothing new.

Even trading genius Ed Seykota lamented in his interview for Market Wizards (1989) about getting ‘impaled’ on numerous silver spikes.

It’s just the nature of the very thin market.

For example, as of this post, there are 176,008 silver futures contracts active (Open Interest) out to January 2021.

That compares to 835,037 active gold futures contracts for approximately the same time-frame.

So, at this point, the gold market has over 370% more active futures contracts than silver.  Silver is indeed a thin market; therefore lending itself to radical (spike) moves.

The spike lower in March and then higher over the past week, is quite evident.  However, if we pull out and look at the big picture, there’s trouble ahead for the bulls.

On the SLV chart is a massive multi-year resistance zone in the 23 – 26, area.

Not only that, it’s a 38.2%, Fibonacci retrace of the entire down move from the top in April of 2011, to the bottom in March this year.

Thus, price action itself implies that silver (SLV proxy) is still in a bear market.

The chart allows for the probability of further downside action once the upside objectives are met.  We can see a hint of that downside objective (circled) as somewhere below the 2009, lows.

Of course, expect the market and analysis hysteria to ramp up as (or if) SLV approaches the 25-area.

If or when that happens, we’ll be looking for clues that a reversal is imminent or if by some other measure, “this time is different”, suggesting that silver will continue higher.

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.