Silver Stocks Ready For 1000% Move?
So, what the heck is going on with Silver? One can go nuts reading reports that silver is going to go through the roof while at the same time looking at its price which seems to be heading more towards the basement. Is this the storm before the calm?
In this periodic issue of Technically Precious with Merv I thought I’d look in on where silver (and silver stocks) is right now and see if there is any hope in the future. As most of my readers know, I have no knowledge of the fundamentals behind any of this. I just look at the charts of the daily and weekly activities of thousands of traders and try to decipher what’s going on in their minds. THEY are acting with their money not just spouting words, and money usually talks.
I hope that those of you who are in the silver market are NOT thinking that you are “investing”. In my view there is nothing in the silver market that I would consider as “investing”. The commodity and the silver stocks should be considered, at best, as speculations and at worst, as gambles. Speculation may be viewed as placing your money based upon FACTS as derived from your fundamental or technical sources. Gambling is placing your money, closing your eyes and praying for the best. Intelligent speculation (I.S.) is, of course, speculation based upon technical considerations with entry AND EXIT points clearly understood. So, let’s get on with it.
Shown, is a weekly chart of the silver price action going back a few years, to the beginning of 2008. Prior to November of 2001 silver was in a 3 year 46% bear market. It then had a 417% bull move to March of 2008. What we see in the chart is the 56% bear of 2008, the 437% bull of 2009 to 2011 and the 62% bear since the high of 2011. Readers are no doubt totally bewildered by all the sophisticated technical analysis they may have been subjected to elsewhere so I will try and keep it simple (as if I know anything other).
Long time readers may remember my Merv’s FAN Principle. The fan idea is not new and probably goes back many decades but I have introduced a few simple criteria to understand them. I wouldn’t go into the whole criteria here but will just address the fans shown in the chart. Shown are my Bearish Accelerating Fans. The breaking of that third FAN trend line tells us the surge is over and a bear has started. The earlier FAN trend lines become support lines during the decline. The breaking of the second FAN trend line confirmed the bear, per my simple criteria. Since then it has been down hill. No new fans are evident and they most often are not. The FAN Principle only comes into effect occasionally.
The eventual breaking of the first FAN trend line established a well defined down trend line followed several months later by a support trend line making a bullish downward sloping wedge pattern. These downward sloping wedge patterns are considered bullish as the most likely breaking is to the up side with a bull move in process. The question is “When will it break on the up side?” We will just have to wait and see. Simple criteria here is that the best time with the most powerful move should be after about 2/3 of the way down the wedge. We are just around that place now so any break here should be a very good strong start to a bull market taking us back at least to the 2011 apex point. However, the longer it continues down the wedge from here the weaker any subsequent break may be. This is just based upon the odds not 100% accuracy.
So, what else do we have on the chart? We have a price action that is still below its long term and intermediate term moving average lines and both lines are still trending downward. We have the long term momentum indicator (30 week RSI) that is still in its negative zone although showing a little less weakness than the price action. The intermediate term momentum indicator (not shown) is also in its negative zone and as with the long term, it is showing slightly less weakness than the price action.
Very important for those who may be interested in getting in on significant trends (as opposed to short term trading) is the “no man’s zone” between the $25 and $26 levels. Any new bull move must decisively break above this zone which is a significant resistance zone.
In a nut shell, we are still in a bear market but with some signs that a reversal may not be far away. However, DO NOT try and GUESS when the move will start. Wait for a confirmation of a new bull to greatly reduce the risk of losing your shirt. There will be plenty of profits to be made AFTER a new bull has been confirmed.
When speculating in silver stocks one learns that there are very few pure silver plays. Yes, there are a few but most stocks have other components to them, mostly with gold components. In the development of my silver indices I HAVE NOT tried to assess what percentage of their activities are silver activities and what percentage are other activities. To the best of my knowledge they all do have major silver components.
Over a period of time I had developed two separate silver indices, one representing the largest silver companies and one representing the more speculative side. These are described in slightly more detail below.
Merv’s Qual-Silver Index
The Merv’s Qual-Silver Index was developed starting back in January of 1999. It initially included the 10 largest silver stocks traded in the North American market. A few years ago, for a variety of reasons, I expanded the Index and it now includes 30 of the silver stocks with the highest market value (at the time of last review). The chart only shows that portion of the index from the beginning of 2008 (for comparison with the other Indices in this review). For the first few years of the Index it just trended sideways, not really going anywhere, until the end of November of 2001. From there we had a 1790% bull move to March of 2008 followed by a 76% bear move to December of 2008 then another 411% bull move to April of 2011 and now a 63% bear move to its low in June.
What can we learn from the chart of the “quality” silver stocks? Not that much. The action follows that of silver itself. We do have a set of trend lines from the 2008 low. They do suggest that a bear market was confirmed when the Index broke below its mid-2011 low. Since then it has continued lower reaching its lowest point last June. The latest action is close to this low and may yet go lower. We have the same situation here as with silver itself. The Index is below both its long term and intermediate term negatively sloping moving average lines. The long term and intermediate term (not shown) momentum indicators are still in their negative zones. Both are showing some lesser weakness than is shown by the price action, for a little mercy. Although we do not have a similar bullish wedge pattern as with silver we do have a well established down trend line that needs to be broken on the up side for a bull market to get going. Also, as with silver, we do have a serious resistance level that needs to be decisively broken on the up side before confirming a bull market is in progress. That level here is the 1200 point level.
Again, as with silver, in a nut shell, we are still in a bear market but with some signs that a reversal may not be far away. However, DO NOT try and GUESS when the move will start. Wait for a confirmation of a new bull to greatly reduce the risk of losing your shirt. There will be plenty of profits to be made AFTER a new bull has been confirmed.
Merv’s Spec-Silver Index
A few years after the development of the Qual-Silver Index I decided to develop an Index which tracked the more speculative silver stocks, the “pennies”. This Index, the Merv’s Spec-Silver Index, was composed of 25 stocks usually priced below $2.00 and mostly in the penny range. The composition had recently been expanded to include 30 stocks in the present Index. The chart shows the same basic time period as the other charts do except that it starts in November of 2007 to include the start of the 2008 bear move. Although this Index did not start until January of 2003 I conservatively assumed the same performance from November of 2001 to January of 2003 as that of the Qual-Silver Index for comparative purposes. This gave me a bull move of 5520% to the December 2007 top. We then had a 73% bear move in 2008 followed by a 1034% bull move in 2009 to 2011 and then a 71% bear move to the June 2013 low. It should be noted that the Merv’s Spec-Silver Index had hit a further bear low a couple of weeks ago and this bear may not yet be finished.
Although magnified, most likely due to the penny stock prices, one can see a similar chart action here as with the other charts. We have a weak price action which is below its long term and intermediate term negatively sloping moving average lines. We have a long term momentum indicator still in its negative zone but in this case is showing a noticeable positive divergence with the price action. The intermediate term momentum indicator is doing likewise and even with a more positive divergence. This is interesting as these divergencies are very often (although not always) a pre-cursor to a trend reversal to the up side and one would have expected them to show up in the more quality stocks and not the “pennies”, but there they are. We have two decelerating down trend lines shown. For these to be the first and second FAN lines would require a third down trend line with a steeper downward slope. That would entail almost a sudden plunge in price from these levels but if that should happen we would very likely be at the bottom of the bear market ready for a new bull. Just thinking.
So, in summary, we are still in a bear market in the “pennies” with no real reversal in the works, although there are signs that a reversal may not be far away. As with the caution above, I would wait for a reversal of trend to take place before risking any capital on the “pennies”. When dealing with the “pennies” one should think percentages and not dollars and cents. A $0.05 drop from $0.10 to $0.05 may only be a $0.05 drop but it is also a 50% decrease in capital. If you are gambling on the “pennies”, remember, they can very easily drop to zero. Better to use Intelligent Speculation.
Once the speculative silver stocks do start to move one might expect another 1000% advance in the Merv’s Spec-Silver Index such as it had during the 2009 to 2011 bull run (or maybe even 5000% as during the 2001 to 2007 bull).
Well, that’s it for today. I know I’ve missed a whole lot of technical stuff such as Volume, Elliot Wave, and stuff like that there but you can’t have everything. Just the simple facts here.
Comments are always welcome and always read but time limitations do not allow for always answering the queries. Sent comments to email@example.com.
Here’s wishing everyone a profitable, happy and silver spectacular New Years.
Before you speculate, Always check your market timing with a
Qualified Professional Market Technician
Merv is a retired Aerospace Engineering consultant. He is also a retired market technician with over 40 years of market experience and research. Merv received his certification as a Chartered Market Technician (CMT) in 1992. Developer of many technical techniques and programs which he has been using in his previous Technically Speaking with Wil-Arm and Technically Precious with Merv commentaries posted throughout the globe. Developer of several gold and silver Indices, Merv continues to update his Merv’s Gold & Silver 100 Index and Merv’s Penny Arcade 50 Index and reviews them during his periodic on-going Technically Precious commentaries.