Silver Market Trends for Early 2002
Silver enthusiasts were ecstatic with the white metal's latest rally, and for good reason. The metal has shown signs of technical strength and momentum not seen in quite some time.
Lately, there have been many articles in the financial advisory press touting silver as an excellent short-term investment. Even the conservative and highly respected Futures Magazine featured an article entitled "Silver: Tarnished no more" in the December 2001 issue. Could so many observers be right? Could the silver market ignore this excess of bullish enthusiasm and keep rising to greater heights? Although a plethora of bullish praises from financial analysts and the newsletter press would ordinarily be cause for concern (from a contrarian standpoint), it appears that this is a rare case of the investor consensus being justified.
A reader asks, "What do you know about silver? A prominent financial analyst contends that enormous supplies of silver exist above ground and China has a lot of silver and is flooding the market. How will this effect silver prices?" The simple answer to this question is that such details are really moot since supplies can be exhausted rapidly under the right set of conditions, or held back altogether from reaching the market. This is why it is best to let the chart do the factoring of all conditions pertinent to supply and demand and avoid fundamental analysis. What most investors fail to consider is that transportation and distribution one of the most important elements effecting supply and demand, and even if physical inventories are very large, a concentrated effort at keeping supplies from reaching the proper channels by market controllers can causes prices to perform in exactly the opposite manner than supply/demand figures would sometimes indicate.
Indeed, it is all too easy to get caught up by the allure of fundamental analysis of the silver market. The analyst is tempted by barrage of statistics and inventory numbers which appeal to our intellect and lead us to believe that with a bit of brainpower we can solve the supply and demand puzzle. Yet trying to figure out the silver market with mounds of fundamental data is like trying to find a needle in a haystack. This is where so many analysts err. It has been scientifically proven that the human mind is incapable of dealing with the myriad possibilities from just three simple variables, let alone hundreds of variables. This is what fundamental analysis tries to do: to forecast prices based on a million pieces of data. All that is essential to forecast the silver market is a good chart, since the chart distills all known factors influencing supply versus demand and boils it down to the bare essentials. In fact, the chart IS the market and renders the final verdict on where prices will be heading in the future.
Having said that, let's examine a number of charts in the silver industry for clues as to what the market trends are and where prices are headed in early 2002.
Comex silver futures (March 2002 contract) are finding bottom around $4.45-$4.50 and after a brief period of consolidation will be poised to rally again to test the recent highs just under $4.80. Cycle channels for silver are up going into the second quarter of 2002.
Among silver equities, Pan American Silver (PAAS) has found support above $4, and while still working through considerable short-term supply, should begin to move upward again later this quarter and eventually overcome its recent high at $4.75. The interim cycle channels for Pan American are up in the first half of 2002 and PAAS should have a very good year.
Silver Standard (SSRI) is correcting from its recent run-up and is finding cycle channel support along the $2.50 level. By next month SSRI will be poised to begin the second leg of its rally from its October-November base. The next upside target for SSRI is $3.00, and the configuration of SSRI's cycles suggests this level will be met or exceeded.
Agnico-Eagle Mines (AEM) is currently in an uptrend and has enough momentum to make it above $12, at which point a period of rest and consolidation should take place. The intermediate-term outlook for AEM is bullish. It is to be noted AEM produces both gold and silver.
Corner Bay Silver (BAY:TSE) has seen its peak for now and must contend with a considerable amount of supply before it is strong enough to mount another meaningful rally. The cycle channels are all down into February and the priceline has plunged below its 20-day moving average. The double-top at $3.00 earlier this month was made on tremendous selling volume, and there was even more heavy selling volume in the days following the peak.
Avino Silver & Gold Mines (ASM:TSE) is a low-priced mining play with a bullish short-term outlook. The cycle channels are pointed up for ASM for the next few weeks, and from its current $0.40, a near-term upside objective of $0.45-$0.46 should be reached by next month.
First Silver Resources (FSR:TSE) is another attractive junior mining play with limited overhead supply. FSR broke above its October top earlier this month and in doing so absorbed a large line of supply. The cycle channels for FSR reflect a bullish cycle configuration in early 2002, and although the market is presently consolidating, a resumption of the upward trend should occur later this quarter.
Apex Silver Mines (SIL:NYSE) is far and away among the most bullish of the silver mines heading into 2002. Apex has reached a temporary stopping point in its ongoing rally from November's lows but will find support above $11 and will then rally further above its latest peak just below $12. The cycle channels for Apex are just what we like to see in an uptrending equity-a nice parabolic bowl with virtually no overhead supply to contend with. Apex's two-month base projects a high to $12.50-$13 before the first significant correction occurs.
Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy. The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment. He is also the author of numerous books, including most recently “Kress Cycles.” For more information visit www.clifdroke.com