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Is the Silver Rout Over?

Apr 26, 2013
Chad Karnes, CMT

After silver and gold had their largest two day decine since 1983, gold has snapped back somewhat, but silver has lagged. When is it time to buy silver again?

If you follow the precious metals markets then you know that gold, silver, and most other elements found on the periodic table certainly have not been glittering the last few weeks.  (Does anyone have an update on the Oxygen or Krypton markets?) 

With the largest two day drop since 1983, gold and silver proved that they were more likely than not in a bubble since at least 2009 as “Gold Mania” peaked in 2011.

Should you be a buyer here after such a rout?

A Bubble Burst?

The precious metals (NYSEARCA:IAU) peaked in 2011, but every time these markets (NYSEARCA:XME) pulled back, there were buyers that stepped in at key levels.  These levels became extremely important support zones, essentially the line in the sand between two years’ worth of profits and instant losses.

On 4/10 we warned with the following commentary on SLV when it was trading at $26.68:

“Anymore deterioration in price and the expectation would be for another test of the long term support level ($26 on SLV).  Until proven otherwise the short and medium term trends in Silver (NYSEARCA:SLV) still remain bearish as the red downtrend channel in the chart below acted as resistance, stopping the precious metals rally.  A break of $26 on SLV (shown on the chart in green) is a warning sign that the support shelf on spot Silver ($26.15) may not hold this time.” 

These prices were so important we actually have been watching them since last summer as we advised on 7/11/12 when Gold (NYSEARCA:DGL) and Silver (NYSEARCA:ZSL) were last nearing these levels and just before a strong rally in the metals that we took advantage of last summer (more on last summer’s rally here). 

If $25.50 (on SLV) fails as support, look out below as there is very little support south of $25.50.  If/when that occurs, a great short opportunity will likely be upon us.”

The technical lines in the sand were drawn as far back as last summer and shown by a similar green support on the next chart.


The Bull Officially Over?

The precious metals haven’t put up much of a fight since their mini-crash, and the silver bulls (NYSEARCA:USLV) have been non-existent since the selloff, with silver making even lower lows. 

That is one of the reasons we provided a chart on April 17 showing the lower price where SLV may get a bid. 

That level (reserved forsubscribers) is where a key trendline and support pivot resides and is a price that could form a bottom. 

When that support price is reached and given the extremely negative sentiment currently associated with the metals, once the relief rally begins it likely will offer a sizable opportunity on the long side (NYSEARCA:AGQ).

The ETF Profit Strategy Newsletter outlines critical support and resistance levels that have the power to shape the market’s direction and warn of important trend changes.  Updates occur every Sunday and Wednesday evening.

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