Lessons from Silver’s Blow-Off Top

On January 15th^thI wrote an article,“Repeat history? Why is silver making a blow-off top?” Friday, silver and the iShares Silver ETF (SLV) Each day dropped nearly 40%, one of the worst drops in a precious metal in the last century.

Image source: TradingView

“Wall Street never changes, pockets change, suckers 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 human and often fall short in my analysis, studying the great history of silver provided me with important clues. Some clues that the blow-off was about to peak:

· Distance from 200-day moving average: Silver was above 100% of its 200-day moving average. Historically, such a wide gap from the 200-day is temporary.

· Fatigue interval occurs: An exhausted gap occurs when a stock or ETF gap is higher in overnight trading after a steady price move. Before silver’s plunge, the SLV ETF flashed four classic exhaustion gaps.

· Record trading volume: Like SLV and Silver Proxy Sprott Physical Silver Trust (PSLV), Global Silver Miners ETF (SIL), and ProShares Ultra Silver ETF (AGQ), Flash record trading volume. Record trading volume after a large price advance is a classic sign that a trade has become clear to the crowd and “irrational exuberance” has kicked in.

· 261.8% Fib level: Fibonacci extensions are used by technicians to identify price targets. Silver touched the 261.8% Fib extension target (almost in the money) before falling.

Image source: TradingView

Image source: TradingView

While the loss in silver was due to a combination of profit-taking, a rebound in the US dollar and a new Fed chair, price action told the advance story.

If history is any guide (and it has been great for silver), silver has just seen a multi-year top. Silver had two similar blow-off tops:

1. Hunter Brothers: In the 1980s, silver was the top when Hunt Brothers tried (but failed) to carve out a silver market. Silver will not break the highs for another 30 years.

2. The Commodity Bull of the Early 2000s: After the early 2000s, China-driven bull market, silver again had a screaming bull market that ended in 2011 with a blow-off top. Silver does not make another high for 13 years.