It’s been a rollercoaster experience for silver (SLV) buyers the previous two weeks, with pleasure about $100/ouncessilver after Reddit set their eyes on the commerce rapidly dissipating. Actually, regardless of the Wall Road Bets crowd taking purpose on the silver market, it was down for the week, closing properly off of its highs. The excellent news is that whereas we noticed important chatter in regards to the steel on-line, we haven’t seen this translate into exuberance but, with sentiment readings nonetheless suggesting additional upside for the steel over the medium-term (2-4 months). Subsequently, whereas final week’s torpid shut was disappointing, I stay bullish on the steel over the medium-term and long-term.
(Supply: Creator’s Chart, CFTC Information)
If we check out small speculator positioning (blue bars) vs. the silver value above, we are able to see that lengthy positioning stays close to elevated ranges at almost 55,000~ contracts, however we’re nonetheless exterior of the hazard zone above 65,000 contracts the place we frequently see medium-term tops.
The truth that we had near-unprecedented chatter in regards to the steel final week however didn’t see a stampede for publicity on this indicator is a constructive signal as a result of an excessive amount of lengthy publicity for this indicator typically warns that the rally is on borrowed time. Based mostly on a studying of just under 55,000~ contracts final week, this indicator stays impartial, suggesting that additional upside and new highs above $31.00/ouncesare doable for the steel within the subsequent couple of months.
(Supply: Each day Sentiment Index Information, Creator’s Chart)
If we take a look at one other measure of sentiment, we are able to see that optimism has certainly returned, with long-term bullish sentiment up from 35% to 70% in simply over a month. This sharp enhance in bullish sentiment is as a result of we’ve seen a number of readings above 90% bulls over the previous two months for silver, which signifies that 9 out of 10 buyers are bullish.
Usually, this can be a warning signal short-term, however the excellent news is that we’ve seen some corrections alongside the way in which, like final week’s 10% drawdown. At the moment, we stay on a impartial studying for this indicator as properly, with long-term sentiment sitting close to 70%. The best state of affairs could be sentiment cooling off a short time the steel rallies, which might forestall us from seeing a promote sign for this indicator as early as March. Sadly, that is unlikely, as there’s nothing like value to alter sentiment. In abstract, whereas we’re not on a short-term promote sign right here for silver, we may hit one by the primary week of March if silver trades above $31.00/oz.
So, what’s the excellent news?
The excellent news is that silver did handle to get via key resistance final week and solely has one short-term resistance stage forward, which is $28.90/oz. If the bulls can get via this stage on a weekly shut, there isn’t any quick resistance overhead till the 2012 highs. The opposite excellent news is that silver producers are set for an unbelievable 12 months forward if the silver value stays above $27.00/oz, with the typical promoting value for many producers being nearer to $22.00/oz. Going ahead, so long as silver stays above $26.55/oz, momentum will stay to the upside throughout most time-frames.
So, what’s the perfect plan of action?
Whereas investing in silver producers could be the plain conclusion, many silver miners are buying and selling at properly above 20x earnings they usually appear to be front-running a possible breakout via $31.00/ouncesfor silver. Subsequently, whereas the perfect names like Pan American Silver (PAAS) might be strong momentum names, these searching for worth could be higher to enterprise into the gold (GLD) sector the place miners like Kirkland Lake Gold (KL) are buying and selling for lower than 9x FY2021 annual EPS estimates. In the meantime, in the case of silver, I see the steel as a maintain right here, however I’d view any rallies above $31.50/ouncesas a chance to e-book some earnings. It’s because I’d anticipate a correction if we do head above this stage earlier than Could, provided that sentiment would doubtless set off a short-term promote sign.
Disclosure: I’m lengthy GLD, KL
Disclaimer: Taylor Dart will not be a Registered Funding Advisor or Monetary Planner. This writing is for informational functions solely. It doesn’t represent a suggestion to promote, a solicitation to purchase, or a suggestion concerning any securities transaction. The knowledge contained on this writing shouldn’t be construed as monetary or funding recommendation on any material. Taylor Dart expressly disclaims all legal responsibility in respect to actions taken based mostly on any or the entire info on this writing.
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SLV shares had been buying and selling at $25.36 per share on Tuesday morning, down $0.03 (-0.12%). Yr-to-date, SLV has gained 3.22%, versus a 4.27% rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Creator: Taylor Dart
Taylor has over a decade of investing expertise, with a particular give attention to the dear metals sector. Along with working with ETFDailyNews, he’s a distinguished author on In search of Alpha. Study extra about Taylor’s background, together with hyperlinks to his most up-to-date articles. More…