Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Seasonal Trend Analysis, Sell in Early May and Lose Average $1 per Ounce Each Year

Commodities / Gold and Silver 2010 May 14, 2010 - 02:17 PM GMT

By: Przemyslaw_Radomski

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleWe would like to begin this essay by touching on the popular belief that precious metals - and especially silver - tend to drop heavily this time of the year. The saying suggests selling in May and going away - is this really the best way to go? At Sunshine Profits we're rather reluctant to take the common knowledge for granted - we prefer to dig deeper and check ourselves if every fact is really fact, not just an opinion.


So, while the "sell in May and go away" phrase does appear close to being true, we would still prefer to provide you with details before making final calls. This week, we will provide you with two seasonal silver charts, as the white metal is known for is seasonal tendency do decline in May. Let's begin with the May chart, and then we will move to the June one.

If you are not familiar with the way of reading these charts - you will find a quick reminder below.

While the idea of seasonality is nothing new - for instance, most investors are aware of the summer doldrums pattern, which means that virtually all markets tend to trade sideways in the middle of the year, we are taking it to the whole new level not only by focusing on the precious metals sector itself, but also by taking a very detailed approach allowing for the seasonal patterns to be used also in short-term trades. Additionally, we are measuring the quality of projections made using this tool. As you will soon see, there are times when these patterns are really reliable and there are times when they are to be approached with caution.

The way the below chart "works" is this - we've checked silver's performance in each May/June from 2002 to 2009 and extrapolated silver's average performance to where it was at the beginning the month. If the history is to repeat itself then perhaps the average performance of silver in May provides us with a "road map" to where it is likely to go during the whole month. Of course gold does not move in the same way each year at the same day, but at times these tendencies could provide a valuable confirmation or (which is even more important) non-confirmation.

Surprising, isn't it? Based on the way silver performed in Mays from 2002 to 2009 we see that silver has used to move over $1 higher during May with the top being right at the end of the month. Yes, there is also a tendency for the white metal to move lower in the middle of the month, but it tends to rise once again in around the third week of the month or so. Then, the local top is formed around the end of the month.

So, does the above chart say that silver will go above $20.60 at the end of the month? No. No promises here, of course, but it does say that this is what used to happen on average so the "more average" this May is, the more reliable the above "roadmap" gets.

Taking a look at the green slope (quality of projection), it tells us that silver being 80 cents above the May 1st level is more certain at about May 27th, than it is at May 13th - the quality of projection is slightly higher in the former case.

Therefore, although it may seem like a no-brainer to dump one's silver holdings right now, seasonal tendencies don't scream "sell" at this point yet, as silver tends to rise during the whole month of May. In other words, while we may move slightly lower from here, seasonal tendencies suggest that PMs are going to be higher in about two weeks than they are at this moment.

Now, June the situation in June is quite different...

While the second half of June is nothing to call home about, the first two weeks tend to wipe out May's gains. While silver used to rise about $1 in May or so, it also used to decline about the same amount in June. Please note that we used Thursday's close as the beginning price for June. The goal was to put percentage moves into proper perspective, not to tell you that we expect to see silver at that price on June 1st.

The first 10-15 days of June are most likely to provide us with lower silver prices - still, the white metal didn't use to plunge before the end of May.

Summing up, silver - and also the rest of the PM sector - is not likely to plunge severely now - odds favor a decline in a week or two. Still, the main point here is that the "sell in May and go away" is slightly inaccurate, as the top is usually formed right at the end of the month. If one took this advice to the letter and sold in early May each time during the past 7 years, one would on average miss out on a $1 rally each year in silver. Therefore, let's keep in mind that there's much more to the analysis of the seasonal tendencies than just suggesting to "sell in May and go away."

Now, let's take a look at how we could translate the above analysis to the current situation. As you may know, this is just a small version of the whole analysis, so we will not cover everything here - instead, we will focus on PM stocks. Let's begin with the long-term HUI Index chart (charts courtesy by http://stockcharts.com.)

With respect to the mining stocks, last week we mentioned that the HUI was ready to move above its resistance level. As we know now, this finally happened for the first time since its February bottom. The strength of this move and the resulting momentum are significant. We may, in fact, see the whole PM market move higher. The RSI, slightly above 70 suggests that we are close to a local top but not necessarily at one.

What we see in our analysis of the charts leads us to believe the local top will be at or near the 2009 high. This reasoning is based i.a. on the fact that this level proved to be a very strong resistance level during both 2008 and 2009 highs.

Turning to the short term GDX ETF chart, we can analyze volume, which recently has seemed to be on the low side along with lower values of the ETF. This is normal during small pullbacks - not a signal of coming decline. So, we are bullish at this time to see a small move upwards.

Still, mining stocks do not show as great a potential as silver and gold at this time. In the Wednesday's Market Alert we wrote the following:

Given the strength of the momentum (confirmed by volume) it seems that PM stocks may need to slow down before the local top (also in gold) is reached. This is what we usually see before the top is in, and we didn't see it so far.

One other fact, which we wish to make note of here, is that the bottom, which we forecasted, took place exactly as stated (marked with the blue ellipse on the chart). 

For a final chart in this essay, the GDX:SPY ratio often forms tops and bottoms along with PMs and PM stocks. Therefore, what's bearish for the ratio is partly bearish for the whole PM market. As we have mentioned in the previous updates, tops are often accompanied by a huge volume, and they take place when the RSI is right at the 70 level.

The latter has been the place recently, so the question is if the volume has been high or not. We have marked it on the chart with a big red arrow as it is visible on a relative basis, but if we take into account the volume that we've seen from November 2009 to mid-April 2010, we see that the very recent volume is quite normal.

Comparing the current situation to what we've seen in November 2009 (final stage of the rally), it seems that perhaps we might need to see more significant spike in volume before we can state that the top has been confirmed.

Summing up, we are presently less bullish on PM stocks than on PMs, and we believe that they are not going to perform as well in the final stage of the rally, which by itself will serve as a confirmation that it is - in fact - the end of the rally.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in