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Silver Likely Market Top

Commodities / Gold and Silver 2010 Jun 10, 2010 - 01:10 AM GMT

By: Guy_Lerner


Figure 1 is a weekly chart of the i-Shares Silver Trust (symbol: SLV). The pink labeled price bars are negative divergence bars. The divergence is between an oscillator indicator (called value charts) and price. (Of note, there is nothing unique about value charts as an oscillator other than I can program with it; as a matter of record, this is the same oscillator I use in all my charts.)

As I have shown on numerous times, the presence of negative divergences tend to suggest slowing upside momentum, but they do not guarantee a market top. However, what we do know is that they tend to occur late in a bull run, and clusters of negative divergences are highly suggestive of a market top.

Figure 1. SLV/ weekly

If you don't believe me, check out this article from November 16, 2009: "Just Sell Something, Please!!" and this article from December 1, 2009: "Have You Sold Anything Yet?". This pattern of a clustering of negative divergences showed up in the equity markets back in November, 2009. It also showed up in long term Treasury yields only 8 short weeks ago prior to an 15% drop in yields. It also showed up in copper back in January, 2010. The pattern is repeatable enough across multi markets that it is noteworthy.

So let's return to figure 1 our weekly chart of SLV. The indicator below the price graph counts the number of divergences over a given time period, and since the first cluster showed up in October, 2009, SLV really hasn't done a whole lot. Now we have another cluster, and I cannot see SLV moving significantly, and in all likelihood based upon this pattern, there is a strong possibility of a market top.

Over the last 35 years looking at a continuous contract of silver, we note 2 other instances of this pattern occurring. The first was in 1993, when this pattern marked a high (give or take a few percent) in silver that lasted for over 10 years. Prior to that the pattern showed up in late 1978 and silver went 10% higher over the next 8 months before exploding higher in 1980.

By Guy Lerner

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of and as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2010 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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