My Biggest 'Fear' For Silver
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
While we were prepared for last week’s run in silver in our service on ElliottWaveTrader.net, many are only now suggesting to buy into the metals after missing the last 10%+ move up in silver. Yes, that is what happens so often in financial markets. Markets go higher and people want to buy more the higher it goes. Yet I was getting a lot of pushback when I was suggesting people use price levels below 15 to accumulate silver holdings.
What strikes me as odd is that in every other aspect of your life, you are in search of “the deal.” If you want to make any other type of purchase, you invest a lot of time in finding the best or lowest price you can find out there in the market. Yet, that is not what happens with most investors in the financial markets.
When prices are low, too many are scared to buy for fear of it going lower. Yet, the higher prices rise, the more investors feel compelled to buy the stock.
What I also find so interesting is that when the dollar is rallying and the metals are falling, everyone and their mother notes “the metals fell on dollar strength.” But, when the metals rally alongside a dollar rally, we do not hear “the metals rallied on dollar strength.” Do you think that is an honest assessment of the market – in either direction? If you are being honest in your assessment then you must recognize the truth of both statements, and realize that correlations should not be a primary tool in market analysis.
If you look at the dollar action this past week, would you ever assume that silver rallied 10%? Would you ever assume that silver had the strongest week it has seen in many years?
I have always been a big believer in analyzing each chart on their own. You see, if you attempt to trade based upon a correlation, and that correlation breaks, you are sitting on a whole heap of losses. Moreover, it often takes quite a bit of time before you recognize that the correlation has broken, leading to further losses.
Now, think about it. If you are basing your analysis on a correlation, first, you must correctly analyze the correlative asset. And, second, you must also assume that the correlation will hold true. Therefore, you have two ways in which you can lose money. First, you can make a mistake in your analysis of the underlying correlative asset. Second, even if you get that analysis correct, you then can lose money if the correlation breaks.
However, if you have an analysis methodology that can analyze each chart on its own appropriately and accurately, not only will you be able to identify the appropriate directional trend for the underlying asset, you can also identify the appropriate directional trend for the correlative asset. And, lastly, you can even identify the point in time when the correlation will break. Therefore, not only is there no need for relying upon correlations, but you will likely be much more accurate in your overall approach to the market.
As an example, in 2015, I was preparing my subscribers for a break down in many of the correlations followed in the markets. I even penned the following public article warning about the impending break down I was seeing develop in the charts I was following. Gold Paradigm Shift, Are You Prepared?
And, then a few months later, Morgan Stanley noted their surprise regarding the largest break down in correlations they have seen in over a decade. Morgan Stanley: "We Haven't Seen A Shift This Severe In Over A Decade"
As R.N. Elliott said eighty years ago, “[A]t best, news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend.” Those following our analysis were clearly not surprised by this break down in correlations.
And, most recently, anyone who was basing their analysis of the metals – especially of silver – on the US dollar was certainly left in the dust (pun intended) this past week.
Last week, I noted that as long as silver held its cited support, my next target was 16.50YI. (As an aside, I do have to apologize, as there was a misprint in the support levels cited. Support was noted as 14.45/.50, when it should have been 15.45/.50, which was a much tighter support level. I do apologize for the misprint.)
And, on at 9:41am on Friday, just as silver exceeded my ideal target by 6 cents, I sent out an update to my members warning that we should now see a pullback down into the 15.90-16.10 region. Almost immediately, silver began a pullback to the 16.08 level.
So, what should we be looking for at this time?
Well, we are at a crucial point for silver. And, what I “fear” most is a break down of support pointing silver back down towards a 13 handle. Now, to be honest, I do not see that as a high likelihood at this point in time. As long as silver is able to hold over the 15.90 region, I have no reason to even suspect such a fearful outcome. But, if silver is unable to hold 15.90 support, and follows through below 15.65 thereafter, that fear can become a reality.
Rather, I think it is more likely that silver will hold support, and, if it does, then my next target is in the 17.03 region.
Normally, I only provide analysis to my members on silver. However, I think this is such a critical point for silver, I thought it may be best to share it with those that follow my work on other sites as well. But, please do not expect much more public analysis on silver going forward. It is a very volatile chart, and one really needs to stay on top of it much more than I am able to provide through public articles.