The silver market continues its impressive bull move. There are few technical signs suggesting that this will end, although from a sentiment perspective this trade is extremely crowded on the bull side. There are times when I’m fully in agreement with the story behind a market trend, but there are times within that trend when a market can overshoot and become vulnerable to a severe shakeout. My gut tells me that silver is at or near that point. Most signs point to continuation. Volume seems supportive of the trend. Buying seems to emerge at every little intra-day dip. The adaptive CCI in the chart above is staying above the bullish reference line, suggesting the strong trend is still intact. It seems like grasping at straws to find anything to suggest that this trend will ever end, or even slow down. It seems from past experience that when everything looks this bullish that something happens to send a market unexpectedly the other direction.
One thing I noticed is the symmetry of the two impulse moves defined by the two red lines over the price bars in the above chart of the silver ETF. These lines have been drawn both as regression lines and are of the same length. The little pullback in between these lines is subtle, but I think it is enough to suggest that these two impulse up-moves should be counted separately. If so, the current impulse may be at or approaching an end, not necessarily the end of the bull market, just the end of the current impulse. Before reading too much into this, I’d caution that these symmetrical impulse moves do seem to jump out of the charts when they succeed, but the failure rate is high, and all patterns seem to disappear from notice when they fail. It is easy to become fooled by randomness. But these symmetrical impulses, like other chart patterns do get my attention and often they do become a piece of the puzzle in reading market clues.
The above chart looks at a similar situation from a longer term perspective. This is the weekly chart also with two longer-term impulse uptrends described by the red regression lines. In this case there is a larger pullback that occured for most of the month of January. This time the first impulse to the left is of a longer duration than has occured so far on the current impulse to the right, suggesting this impulse has more to run if symmetrical impulses are in the works. On the other hand, the angle is quite steep, which could suggest this impulse could become unsustainable. There’s always an “on the other hand” when analysing charts. Again, the adaptive CCI is strongly bullish, as it would be with this strong of a move, and may not give much of a warning of a turnaround .
Another thing I always look when trying to figure out the precious metals market is divergence between the metal and the companies that mine it. The above chart shows Silver Wheaton in the lower part of the graph, which is a popular silver miner. You can see how this mining stock has failed to participate in the current uptrend in the underlying metal. Pan American Silver has even shown more weakness, and was down 93 cents today with silver being up by as much. Of course, many company specific issues can cause these divergences, but this seems to be occuring in many of the silver miners. However, (on the other hand) these divergences seem to be less reliable than in years past, probably largely due to the effect of the ETF market.
As I’ve said many times on this blog, it is dangerous to try to pick tops and bottoms. It is much safer to trade pullbacks once a trend is established, and clearly the trend is up in the precious metals. But it is also dangerous to overstay a position in an extremely crowded market. I’ve know many people who have been burned by the silver market over the years in previous bull runs. Almost as many as those burned during the great bubble dot com bust of a little over a decade ago. At least the precious metals market is based on something other than hot air, as was the case with most of the dot com stocks. This is most likely a very long term bull market, that will persists as long as politicians do what they do best. Maybe it will end when we get change that we can really believe in. But don’t hold your breath.