Tracing Silver’s Post-Bubble Chart Pattern

This analysis and chart was inspired by a recent note by McClellan Financial which compares the current silver top with the infamous one that occurred in 1980 as a result of the Hunt brother’s attempt to corner the market.

The two tops have a few things in common but they also differ in many important aspects. Both parabolic moves take prices up to the round number $50 before imploding. And both times the exchange is responsible for increasing margins and in the case of the 1980’s introducing ‘liquidation only’ restrictions that set off the selling.

In the chart below, the two time periods share the same price axis but different time axis, dashed line for 1979-1980 and solid line for current prices:

Among the most noticeable differences is the difference in intensity. The current top pales in comparison with the rapid rise of prices in 1979-1980. Back then prices went from around $15 to $50 within a matter of 2-3 months. In the current scenario that took more than 15 months.

It remains to be seen if silver will continue to follow the path of its previous major top and decline. So far, sentiment would seem to suggest that there is just a bit too much optimism and therefore, we should see prices move lower. From a technical view, silver remains far away from important support levels and trendlines.

The only measure that is showing capitulation is the amount of participation in the most liquid silver ETF: iShares Silver Trust (SLV). The other sentiment gauges have declined but they are not yet showing real capitulation. Among these is the premium/discount to NAV for the Sprott Physical Silver Trust (PSLV) which as of today’s close of +16% continues to exhibit a bullish stubbornness.