Silver has been in a bear market for almost three years and the recent lack
of strength suggests the metal could be headed for new lows. New lows are always
bearish until the last one. Our technical work suggests that we should watch
for a final low and end to the bear market in the coming months.
This chart plots every major bear market in Silver dating back 45 years (excluding
the 1980-1982 bubble bust). It plots them on the same time scale as the current
bear market. Excluding the 1980-1982 bear market, we find that the current
bear market is inline for being the worst bear market. It is already the fourth
longest in time and close to the second worst in price. The current bear is
very close to the 1983-1986 bear. This chart and the 1983-1986 bear suggest
that if the current bear breaks to a new low then its final bottom could occur
about one month later.
Silver has very strong trendline support on the daily chart around $17. If
Silver breaks to a new low then it will run into this trendline support which
dates back 11 years.
In the lower column we plot a 12-month rate of change for Silver. Note how
it often reaches or comes close to 100%. After lows in 2003, 2005, 2008 and
2010 Silver gained 100% in a 12 month period. Moreover, following the 1983-1986
bear market which closely resembles the current bear, Silver rebounded 89%
in 10 months. Following the 2008 low, Silver rebounded 84% in 11 months. Let's
say Silver bottoms at $17.50 and rebounds 70% in 12 months. That would take
it to $30. That would create huge upside in most silver stocks.
Below is a chart of our proprietary silver producers index which contains
14 stocks and is partially weighted by market cap. It contains all of the large,
important silver companies as well as junior producers. We didn't just pick
the 14 best. This index recently peaked at neckline resistance and just below
the 80-week moving average. Note how the 80-week moving average marked resistance
in early 2012 and late 2012. A new bull market will only be confirmed when
this index is able to surpass that confluence of resistance.
From a bird's eye view, the bear market in Silver is just about over while
the bear market in silver stocks probably is over as we don't expect them to
make a new low. However, the silver stocks won't break resistance and confirm
a new bull market until Silver has bottomed. Our analysis shows that Silver's
bear has a bit more to go in terms of price and time. We've laid out what we
are looking for in Silver which is a new low and a bounce from 11-year trendline
support. If that occurs at a time of extreme bearish sentiment then it is a
buy signal. This prognosis, if correct means we have some time to research
and patiently accumulate the best silver stocks which are positioned to benefit
from a resumption of the secular bull market.
Good Luck!
If you'd be interested in learning about the companies poised
to outperform, then we invite you
to learn more about our service.
