Silver Has Bottomed

53
Wed, Feb 4, 2015 - 12:20pm

Of course, fundamentals such as cost of production are important. However, with the help of some charts, I think we can clearly show that silver put in a final bottom back in November and December. With the nearly four year, brutally-enforced bear market behind us, what should we expect in 2015 and beyond?

There will be no hat-eating promises but I'm certainly not going to shy away from what I think is plainly obvious after a sober review of the charts. Namely, that silver has bottomed. Finally. Yes, it has been a long four years but trends don't continue forever and prices aren't going to zero. Therefore, it was always logical to assume that silver would eventually bottom and resume its bull market. With the blowout, capitulative lows of late last year, I firmly believe that we have seen this final bottom.

Let's start with the 5-year chart so that you can see the full picture. After breaking price on May 1, 2011 and then slamming the coffin shut with five CME margin hikes in just nine days, The Silver Banks were able to break the back of the last bull market. With a subsequent raid in September of 2011, price was driven all the way down to $26. That level then held as a floor for nearly 19 months. It wasn't until the coordinated massacre of April 12-15, 2013 that $26 was taken out and price fell to $18.20. The area between $18.20 and $18.60 then held as a floor until September of last year, when the final capitulative selloff began.

So, how can we conclude that this final blowout below .20 was The Bottom? The answer is in the charts below.

Let's start with another look at the five year chart above. Let's remove the red floor lines and add a blue line connecting the April 2011 highs with the late 2012 and early 2014 recovery highs. Now remember what we always say about broken long-term down trendlines...Price almost always comes back down and "rides the line" as support before finally moving higher in the new UP trend. Well, what do you see here?

Next, let's look a little closer. Here's a two-year, weekly chart. Note the resistance area that is the previous floor between .20 and .60. When price was finally broken through that area in early September of last year, it is important to note that it took eight weeks for it to find the bottom in the area between .00 and .50. Next, take note that silver then took eight more weeks to establish and test the bottom between .00 and .50. And finally, notice that we are now in week five of the recovery, back UP toward and eventually through the prior resistance of .20-.60. This doesn't mean that silver will wait until the last week of this month and March expirations to finally and decisively move back through the previous floor but don't be surprised if it does as that would be the final, eight week period.

OK, now let's dial it in even closer. A true, final capitulative event should come on heavy volume. Why? That's the essence of capitulation, isn't it? The throwing up of hands and surrender. Just get me out. I can't take it anymore. After that event, the low that was found should be tested at least once to see if further selling materializes. For a sturdy, final bottom, you'd like to see high volume on the capitulation but dramatically less volume on the subsequent test. Hmmm. What do you see on the chart below?

An additional review of the chart above also reveals another encouraging signal. This wasn't just a double bottom around .50, this was a process. In the middle, on Monday, December 1, there was a massive blowout that actually began on the evening of Sunday, November 30. It was the highest volume of any day. It culminated and concluded the massive selling and volatility of November. And, most importantly, the resulting chart formation is perhaps the most impressive outside reversal, engulfing candle you're ever going to see:

Lastly, one of the most tried and trusted technical chart patterns often comes in at tops and bottoms. When something has exhausted its buying momentum near a price high, you'll often find in hindsight what we call a "head-and-shoulder top". Generically, it might look something like this:

At a low, when something has exhausted it selling momentum, you'll often find a "reverse head-and shoulder bottom". Basically, it looks like you've taken the chart above and flipped it over, sort of like standing it on its head. Now, take a look at the chart below and tell me what you see:

Once again notice the amazing symmetry. After breaking the .20-.60 floor, price fell to .65 and then recovered to near .70. It then fell to the final capitulation low between .00 and .50. Now in its recovery, it has found resistance again at .70 and .20 while finding support at .65. Remarkable!

In the end, I know you're more interested in the future and not the past so, the question becomes, now that silver has bottomed, how far and how quickly might price recover?

Once silver finally paints a weekly close back above the old .20-.60 floor, it will rapidly move toward the blue line on this chart. As it stands today, that's an area right around . You can also expect quite a bit of "psychological, round number resistance" there, too.

But, obviously, the recovery and new bull market isn't going to be limited to just 30% and back up to . No way. Once is bested, the next major test will be , which is the low that was established in the wee hours of April 16, 2013:

And once price finally recovers through , the goal becomes and exceeding the floor/lows from the selloff of September 2011:

Of course, none of this is going to be easy and it is quite unlikely that price ramps back up as quickly as most of us would like. Just a move back to $22 by year end would constitute a 40% move for 2015. That's pretty dramatic and it's only to $22 so don't go expecting too much, too fast. We discussed symmetry earlier and, if you use your imagination, it's easy to see a couple more long-term reverse head-and shoulder formations building on the weekly chart above. For example, the move from $22 to $26 would represent another 18% gain and, with chart symmetry, that could take all of 2016 to accomplish. The next stage from $26 to $36 would be another 40% and that could conceivably take us from 2016 to early 2018. That's three years from now but, realistically, expecting it to take three years for something to double in price is actually pretty aggressive.

That said, it's also possible for silver to move UP very quickly as The Banks are squeezed and forced to rapidly cover. We saw this in 2010 and 2011 and we could very well see it again. As you know, the structure of the latest Commitment of Traders report is similar to that from October of 2013 when price was $23 and what happened next? Price surged from there to nearly $50 in just seven months.

But, whatever. The point of this post is not to get you all fired up and salivating at the prospect of another huge rally in silver. Instead, the purpose of this is to show you why I believe without doubt that silver finally bottomed late last year. It is not going to $8 and it is not going to $12, either. Instead, price will now begin a new UP trend that will unfold over the years ahead, ultimately taking silver back to the 2011 highs and beyond. Prepare accordingly.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  53 Comments

Orange
Feb 4, 2015 - 1:55pm

Turd's little red circle

Has been on my mind all morning, so I set my JNUG at $33.20 before going shopping at 1pm. Just got back to see it sold for a $2 profit since I bought yesterday. I wanted more, as we tend to always do, however that little red circle kept me focused.

Thanks Turd.

Iceberg Slim
Feb 4, 2015 - 1:56pm
Mr. FixIceberg Slim
Feb 4, 2015 - 2:03pm
Marchas45
Feb 4, 2015 - 2:06pm

Turd

You should make this thread Public as it's very well done and very Positive For The Metals. Keep Stacking

indiana rod
Feb 4, 2015 - 2:19pm

Bottom Is In

I'm convinced the 12/1/14 outside reversal day was the bottom. Silver had a low of $14.155, went up $2.655 and closed at $16.692. O. I. fell 17%.

The short O. I. compares to Oct.,2010. The price started to get away from them, threatening ruin to the shorts, hence the 'Sunday Night Massacre.'

Could they do it again? Maybe, but I like the idea of the more than double price in seven months.

The banks have never been over run but there's a first time for every thing. Why did the CME install the daily limits on silver unless they feared a break out?

perdman
Feb 4, 2015 - 2:20pm
CPE
Feb 4, 2015 - 2:21pm

Fellen or Kuroda

When's the perp walk?!?

Steve Silver
Feb 4, 2015 - 2:26pm

GOFO and misc

If you follow the link

https://www.barchart.com/commodityfutures/Gold_Futures/GC?search=GC*

you will see cash and futures contracts trading. If you watch over time cash is trading higher than the February contract and usually over the March contract. That is negative GOFO. CPE suggested GOFO is probably negative. Looks like he's right.

Fridays strong rejection of Thursdays gold takedown suggests that a short term bottom is in place. Meanwhile the cartel is pushing back against every rally. Sometimes they do that when they know something gold bullish is coming and they want to minimize its effect.

The labor report is BS but with the loss of oil jobs as well as manufacturers being hurt by the strong dollar the jobs report may be weaker than expected. A weak labor report would also weaken the dollar so it may actually be politically more palatable than usual to help US companies compete. Weak labor reports have been very gold bullish over the last few months.

Perhaps you may want to get your buying in Thursday.

make sure to have plenty of popcorn the PM show is just getting started.

perdman
Feb 4, 2015 - 2:29pm

Maybe. I don't know.

My only obligation is to provide quality content for everyone here in The Vault. You all are my primary concern.

Why let others know by letting them see this post? Anyway...I'll think about it.

Steve Silver
Feb 4, 2015 - 2:30pm

clarity

Not sure you can deduce negative GOFO from that but you can plainly see and rightly call it backwardation.

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