Silver: 2 Pivotal Price Levels to Watch

It’s been a strong start to May thus far for silver (SLV), with the metal adding to last month’s gains, and making it look like March was nothing but a violent shake-out. Despite this massive bounce off of the lows, however, we continue to see small speculators pare back their bullish bets, suggesting that they either know something we don’t this time or that they’re wrong at the turns like usual. While we still have the bulls outweighing the bears by 20,000 contracts and no sign of widespread fear here, these readings are the lowest we’ve seen in nearly a year, suggesting that the bulls are certainly quite cautious, if not fearful. At the same time this is occurring, we’ve finally got silver trying to outperform gold (GLD) as well, suggesting we might finally be seeing a sea change here. Therefore, I believe any 12% plus pullbacks in silver toward the $13.60/oz level will likely provide buying opportunities.

(Source: CFTC.com, Author’s Chart)

Despite last week’s 5% jump in the silver price, small speculators trimmed another 5,000 long contracts in the metal, moving the 1-month moving average to the lowest reading we’ve seen in nearly a year. As we can see from the 1-month moving average of long contracts above (blue line), and the silver price (white line), the two are going in opposite directions since March, a great sign for the bulls. As I’ve noted in previous articles, we have not yet seen capitulation here or even widespread fear, but caution and a continued decrease in bullish bets at a time of rising prices is undoubtedly a positive divergence that’s present here. Given this positive divergence, there is a higher probability that silver can make a higher low vs. the mid-March lows if we do see some weakness going forward.

(Source: StockCharts.com)

If we move over the silver and gold ratio, we’ve also got a minor positive divergence showing up, as silver is finally trying to eke out some outperformance against the yellow metal. While it’s far too early to call this a turn as it’s merely a 1-month outperformance, and we’ve seen many of these immediately turn to mush the past few years, it’s encouraging as it’s corroborating what we see in sentiment, and that’s a potential shift in the market. To confirm that the silver price is finally leading gold, however, we are going to need to see a breakout above $16.70/oz on a weekly close for silver. This area was a brick wall of support for much of 2019, and the bulls should be able to get through here with ease if we truly are seeing a change of character in the market.

So what’s the best course of action here?

(Source: TC2000.com)

We have strong support at $13.60/oz, and strong resistance at $16.70/oz, and the key to where the next significant move is lying in what area is broken first. If we have seen the lows for silver, the bulls should not even hesitate to provide massive buying support at $13.60/oz on further corrections. Therefore, based on the minor positive divergences we see in silver, we want to watch how the metal acts as these two pivotal areas. This will give us clues as to whether we truly are seeing a trend change and whether the selling has finally run its course. Given that many small speculators continue to throw in the towel in droves despite higher prices, it’s likely we might see capitulation if we get a sharp correction, which might finally be the low in silver. Therefore, while I am not long silver currently, I will be watching to see if we can get any sharp corrections towards $13.60/oz for low-risk buying opportunities. Silver may not have much of an upside case just yet, but the bulls are putting up a fight, and the next low might finally be the low-risk buying opportunity investors have been waiting for if we can see sentiment continue to get worse in the metal.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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The iShares Silver Trust (SLV) was trading at $14.69 per share on Thursday morning, up $0.14 (+0.96%). Year-to-date, SLV has declined -8.13%, versus a 5.34% rise in the benchmark S&P 500 index during the same period.

SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #14 of 34 ETFs in the Precious Metals ETFs category.