January 15thI wrote an article titled,“History Repeats Itself? Why Could Silver Form an Explosive Top?” Friday, silver and iShares Silver ETF (lentivirus) Both fell nearly 40% during the session, setting one of the worst declines for precious metals in the past century.
Image source: TradingView
“Wall Street never changes, wallets change, fools change, stocks change, but Wall Street never changes because human nature never changes.” ~ Jesse Livermore
While I don’t claim to have a crystal ball, and I’m only one person, and my analysis is often wrong, studying silver’s illustrious history has provided me with important clues. Some clues that a peak is about to occur include:
· Distance from 200-day moving average: Silver prices are over 100% above the 200-day moving average. Historically, such a large distance of 200 days was unsustainable.
· An exhaustion gap appears: An exhaustion gap occurs when a stock or ETF gapes higher in overnight trading after continuing price volatility. The SLV ETF shows four classic exhaustion gaps before silver plunges.
· Record volume: SLV and silver proxies such as Sprott Physical Silver Trust (PSLV), Global Silver Mining ETF (Security level level), and ProShares Ultra Silver ETF (AGQ), Transaction volume set a new record. Record trading volumes following a sharp price increase are a classic sign that trading has become apparent and “irrational exuberance” has begun.
· 261.8% Fib level: Technicians use Fibonacci extensions to determine price targets. Silver hit the 261.8% Fibonacci extension target (near the cents) before falling.
Image source: TradingView
Image source: TradingView
While silver’s decline is due to a combination of profit-taking, a rebounding dollar, and a new Fed chair, price action has already told the story ahead of time.
If history is any guide (and it’s been a great history for silver), silver just witnessed a multi-year top. Silver has two similar blowout tops:
1. Hunter Brothers: Silver prices peaked in 1980 when the Hunt brothers tried (and failed) to corner the silver market. Silver won’t break out of this peak for another 30 years.
2. Commodities Bull Market of the Early 2000s: Following the China-driven bull market of the early 2000s, silver once again experienced a screaming bull market that ended with a blowout peak in 2011. Silver has not reached a new high in 13 years.
