Silver Price and iShares Silver Trust (SLV) Going to $12
We are silver bulls! Yes, that’s true. But before we make some money we will most probably lose some. Long-term we like silver. It’s good not just from an investment perspective but also from an insurance one. Kyle Bass, the manager of the $2 billion Hayman Capital agrees with us: “I’d Much Rather Own Gold Than Paper”, Bass said.Long-term silver is probably a buy but medium-term there is so much risk. The charts show that the support for silver lies at about $12 for futures and $12.5 for iShares Silver Trust (SLV).
The Price Chart of Silver Shows Long-Term Uptrend
We can’t miss to share what we see for the silver price. The big picture interpretations shows that the movement from $17.5 to the psychological barrier of $50 from 2010 to 2011 had only a small correction. It just played as a gigantic parabola. When the silver price went above the upper channel we knew we are in no man’s land and this momentum is good for short-term profits but not sustainable.
Experience proved to be smarter than nice parabola feelings. The silver price couldn’t break the barrier of fifty and CME increased margins. This forced the silver bulls to cover – sell and the bears to cover – buy. But the truth is that there wasnobody to buy as the bulls were 98% of the market as per the Daily Sentiment Index. What was next is easy to guess. Silver, iShares Silver Trust (SLV) made several bear formations which always played without failure. The only chart failures were the bull breakouts. What we know from years of trading is that parabolas are reverted back below their previous channels. Based on the long-term demand line which was formed during a period of more than 12 years, the support for silver is around $11-$12.
6 Months H&S Silver Points to Target at that Long-Term Support
What we see on the chart now in the medium-term is a head & shoulders pattern of 6 months duration. If this H&S proves to be valid and breaks out we will probably dive to the $12 support. In case the right shoulder around $17.5 is penetrated, you can buy your silver protection and tight the stops.
Yes, $12 silver price per ounce is a real possibility!
Hedge Funds Wrong Again. Same as with Oil
We love the COT report because it measures sentiment so good. COT is tricky to use but we believe we know how to use it. Shown below, you can see that commercials aka producers (these with inside knowledge unlike the momentum hedge fund machines) are short silver, iShares Silver Trust (SLV). This is very important indication, they are the best informed players.
Source: CFTC + Barchart
Investors, small speculators and hedge funds are still positioned for silver to skyrocket. All this looks very similar to the oil positioning just a year ago when commercial hedged and shorted barrels of oil as fast as possible (something that is saving many of them now), while smart investors and traders were long.
Thanks to Zach Schreiber from PointState Capital, who alerted many hedge funds at the Ira Sohn Investing Conference, some hedge funds didn’t suffer much. David Einhorn for example covered his oil longs and even went short to hedge some oil stock holdings he had, right after the conference.
For the bulls left, the future was not so rosy. You know what happened next. Oil price crashed by 58% going to $45 per barrel of oil from $110.
Of course, we deal with possibilities and we can never be sure if silver / iShares Silver Trust (SLV) will play how we expect it, but as it has gone down 67% from its 2011 high, why couldn’t we see a 75% decline? The technical setup is here, the sentiment is here, the commercials knowledge is here, right on the chart.