Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Silver’s Not-so-subtle Outperformance

Commodities / Gold and Silver 2018 Jun 12, 2018 - 11:22 AM GMT

By: P_Radomski_CFA

Commodities

Silver soared recently and white metal’s rally was accompanied by a huge volume. Those who are new to the precious metals market will probably immediately view this as bullish as that’s what the classic technical analysis would imply. Silver is not a classic asset, though, and classic measures often don’t apply to it. One way to check the real implications of a given development is to examine the previous cases and see what kind of action followed. That’s what we’re going to do in today’s free analysis. Let’s start with silver’s daily chart.


Before Wednesday’s and Thursday’s rallies, the upswing in silver didn’t seem significant at first sight, but the size of the volume suggested that we may have seen something important. It was not spectacular, but it was big when one compared it to the size of the volume in gold. The yellow metal moved higher on low volume, but what we saw on Tuesday in silver was rather average. Could it have been the case that the silver price action was somehow meaningful in relation to gold?

To answer this question, let’s take a look at the chart that features them both at the same time.

On a day-to-day basis, it didn’t appear significant, but when one considers the previous 5 trading days, they will see that gold was lower than it had been, gold stocks were lower than there had been and that they underperformed gold, whereas silver was more or less where it had been before.

This means that silver has indeed outperformed gold, while gold stocks underperformed. The signal was not as clear as if we had seen this kind of outperformance and underperformance on a single day, but it was definitely meaningful.

As a reminder, silver’s outperformance and mining stocks’ underperformance is something that we usually see right before the declines.

Ok, but why are you guys discussing something that happened several days ago?

Because it makes the following signals even more profound. The above is a bearish foundation on which even more bearish signals emerged and confirmed it. Taken together, they paint a picture that’s clearer than it would be without the above-mentioned details.

What we saw on Wednesday and Thursday, were daily confirmations of the 5-day pattern. It was as clear as it gets. Silver rallied, while gold and miners practically didn’t move. The implications are very bearish for the short term. In fact, as odd as it may sound, they are much more bearish than they were before silver’s rally.

As we’ve often stated, just because a price moved higher doesn’t mean that it’s likely to move higher again. This seems to be the most natural way of viewing the market by the beginning investors and traders, but the reality is much more complex. A simple fact that negates the above is that in order to make profits, one needs to buy low and sell high. The price is high after a rally, so based on the above approach alone, one would never be able to sell at or close to a top.

The opposite – viewing rallies as bearish – is only a little better but it’s still wrong overall. The key is to look at the context and only make a decision whether a move is bullish or bearish, once it’s been properly analyzed.

Moving back to silver, some may say that given the above tendency of the white metal to outperform, silver could rally for much longer and thus we should close the trading positions right away and re-enter them after silver already declined, proving that the top is already in.

This sounds good in theory, but in practice, the sharp upswings are very often followed by even sharper declines and it’s very difficult to get a better price during a decline, so ultimately the above trading technique is more likely to decrease profits instead of increasing them.

On Thursday, silver repeated its Wednesday’s rally despite lack of thereof in gold and miners, which further confirmed the bearish implications.

If we consider different source of data, we see that silver actually reversed before the end of the day and closed the session only a few cents higher.

Some may say that the above implies that after all there was no outperformance yesterday. Indeed, overall, there was none, but there was clear outperformance during the intraday rally and that’s enough to serve as a confirmation of the previous days’ bearish signals and further emphasis of their importance.

Since silver actually reversed, it should be particularly useful to look at the volume levels, as big volume levels confirm the bearish nature of a reversal, while weak volume invalidates it. As you have seen on the previous chart, the silver volume was huge. The last time when we saw silver rally on such significant volume, was in late April 2018. Yes, that was practically right at the top (it was top in terms of daily closes, but the price moved a bit higher on an intraday basis on the following day). Big slide followed shortly, so the implications here are also very bearish.

But maybe that was just a coincidence? What about other big-volume daily rallies?

In 9 out of 12 recent cases, big volume during daily rallies meant excellent shorting opportunities (marked with red). In 2 cases it was unclear whether it was an opportunity to go short or long (marked with black), but in both cases entering a short position at that time and keeping it for about 3 weeks would have been profitable. In the remaining case that we marked with blue, silver moved higher but only for 2 weeks – it declined then and if one simply kept the short position intact, for a few more weeks, they would have made sizable gains.

Overall, the implications of a volume spike during a daily rally are clearly bearish… And this doesn’t even take into account the outperformance factor or the shape of the session, which seems to have been a reversal. Factoring in both makes the outlook for the next weeks even more bearish.

Summing up, the recent upswing in silver was not a bullish sign, but a bearish one. Moreover, let’s keep in mind that a small short-term rally was something quite possible in the light of the analogies to what happened in gold and silver when the market was just as boring as it’s been recently. It seems that we have already seen this small rally. Silver outperformed and miners underperformed, just like they are likely to in the final parts of a rally. Therefore, the outlook for the precious metals sector is bearish. In our opinion, it seems best to limit one’s exposure in their gold and silver portfolios.

If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign me up!

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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

6 Critical Money Making Rules