On January 15ththI 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.
Image source: TradingView
Over the long term, silver is often moderately correlated with equities, as a strong economy boosts industrial demand. Over the past two years, the relationship between silver and equities has grown closer as silver is used in fast-growing technologies such as semiconductors, electric vehicles, and AI data centers.
After silver peaked in 1980, the market was lower and more volatile for a few weeks before the bottom day. However, as the silver and equity relationship has grown closer in recent months, investors may want to look to 2011 as a potential precedent. In 2011, the S&P 500 fell ~11% over the five trading sessions after silver topped out.
Image source: TradingView
The bottom line
The recent 40% intraday plunge in silver is not just a localized phenomenon; It’s a stark reminder that human nature—and its tendency toward “irrational exuberance”—remains the market’s ultimate constant. As silver’s industrial connection to the AI sector strengthens, its decline may no longer be a sideshow but a leading indicator for the stock.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 best stocks for next 30 days. Click to get this free report
iShares Silver Trust (SLV): ETF Research Reports
ProShares Ultra Silver (AGQ): ETF Research Reports
Global X Silver Miners ETF (SIL): ETF Research Reports
Sprott Physical Silver Trust (PSLV): ETF Research Reports
This article originally appeared on Zacks Investment Research (zacks.com).
Zacks Investment Research
A Pennsylvania-based manufacturer has been stripped of control over its Russian operations under a Kremlin…
The world's largest naval force continues to strengthen its fleet, this time adding a new…
Walmart has built a reputation for some of the lowest prices through its store brands.…
US Navy ships sent an unmistakable signal on Saturday as they passed through the Strait…
By Justyna Pawlak and Gergely SzakacsBUDAPEST, April 12 (Reuters) - Hungarians vote on Sunday https://www.reuters.com/world/hungary/elections/…
Artificial intelligence (AI) technology is beginning to expand beyond chatbots. What's coming next is agentic…