Silver Surfing a Huge Sentiment Change

Silver is exploding past resistance this morning. Big gains set up an assault on July’s high and an exclamation point that this market, along with Gold and the cryptocurrencies are signaling big trouble ahead for the global economy


I want to show you something on the Silver weekly chart that almost never happens.  And, as a technical analyst who also has an eye on the big macro picture, it is the marrying of the two points of view that can provide truly actionable information.

In short, we know Silver’s fundamentals are insanely bullish.  But markets don’t trade on fundamentals, they trade on sentiment and capital flow.

And this is the hardest lesson for people to learn when analyzing markets, reconciling what their fundamental due diligence is telling them from the way the stock, metal or currency is trading.

We need that technical confirmation that something about the market has changed to begin confirming our fundamental thesis.

It looks like we got one of those signals this morning.

silver 1
With this morning’s move above $17, Silver just painted back-to-back engulfing bars (where the current bar violated both the previous high and low).  Silver’s normal volatility is higher that many other instruments.  Engulfing bars occur on the weekly basis more often than the opposite, the inside bar (where neither the previous high nor low were violated).

Recent trading has been so volatile that there isn’t one inside bar on the chart above.  Four engulfing bars, no inside bars.  This is very odd behavior.  Over the past five years (n = 252) engulfing bars occur 13.5% of the time.

But only four times have we seen back-to-back engulfing bars, a 1.6% probability.  And looking back over the data each of these four occurrences either marked important bottoms or confirmed important tops.  And the direction of the closing price determined the new direction, so bullish back-to-back engulfing bars on the weekly chart signaled the start of a longer-term rally and vice versa.

So, that’s the story here today.  Despite my feeling that we need one more important washout in the metals to confirm the bottom of the precious metals bear market, Silver may be telling us that that thesis may be invalid.

That said, however, Silver still has a lot of overhead resistance to overcome for the monthly, quarterly and yearly charts to turn bullish.

silver 2

But, what this could be signaling is that if that washout happens it will happen near $20 an ounce, not $16 and therefore, the December 2015 low ($13.66) may be the low for the bear market.  And that would be a signal we haven’t gotten before.

For now, an August close above the June high of $17.82 sets up a possibility of a challenge of $18.725, the Q2 high.  It would take a September close above that level to turn the quarterly chart bullish enough to mount an assault on $21.25, the Q4 2016 high and end the bear market.

silver 3

This week’s price action is telling us that there is a tremendous bid building underneath Silver that has little, if anything, to do with war rumblings over North Korea.  Long-suffering longs are forcing shorts to cover at a furious pace.

If there are new buyers coming into the Silver market, in sympathy with things Clif High talked about in his recent interview with Greg Hunter at USA Watchdog, then these markets are about to get incredibly interesting, in the apocryphal Chinese proverb sense of that word, of course.


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