Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
For the last several months, and despite strong opposition to the contrary, I have been suggesting that silver futures can still attain my next lower level Fibonacci extension of 26.87. Yet, all I heard was “you are foolish if you think silver will ever see a $26 handle again.” Well, maybe I am not so foolish after all.
While I was correct in expecting lower levels in my article last week, I incorrectly thought that we could see a small rally before the lower levels were seen. Additionally, we did drop about 25 cents below my bottom target of 26.87 for this past week before the market bounced. So, as I always say, this is a game of probabilities, and we cannot always hit out targets exactly as laid out, even though we often do hit them to the penny. It is simply not possible that anyone can be exactly right all the time and I do not proclaim to be clairvoyant.
Yet, I do believe I have consistently kept readers here on the correct side of the market, rather than simply providing reasons for “hoping” that the market is about to rally strongly. As Franklin said, “he that lives on hope will die fasting.” And, in my humble opinion, there are too many articles dedicated to reasons for “hope” as compared to articles that provide consistent and accurate directional signals.
Along those lines, I have to say that I have seen something that has surprised me a bit of late. Many of those who have been vocal and strong critics of me on Seeking Alpha in the past have been popping up in my Trading Room. In fact, on Friday, when I was welcoming several new “fundamental-converts,” and asking them what brought them to my Trading Room, one of them answered that he was simply tired of continually being wrong and he wanted to finally be right. Clearly, that warmed my heart.
Ultimately, this is what brings many over to the “dark-side” of the metals. They begin to recognize that the “fundamental-flavor-of-the-month” as to why silver “should” rally has continually disappointed them. If you can remember, we have been through the Fed’s multiple QEs, evidence of inflation, European worries, Chinese and Indian demand, Central Bank buying, Cyprus, Japans easing measures, and, one of the latest I heard is that the metals are tied to the real estate market.
Now, we cannot ignore the latest and greatest theory being touted, which is the supposed disconnect between the fast dropping price of silver and the huge demand for silver coins. It leaves many scratching their heads and thinking how we can have higher demand for silver coins, yet the price for silver keeps dropping. So these proponents argue that silver cannot “ignore” these fundamental reasons for it to rally for much longer. My answer to them is “why not?” It is has been ignoring these supposed reasons for two years now, so what is so different right now?
Well, you know this is also providing more and more fodder for the “manipulation” theorists, who, by the way, also view me as foolish for thinking that none of that matters. But, if you ask these “theorists” which side of the market they have been on since our $50 high, as I have continually been looking lower and lower, I will let you decide for yourself who is the greater fool.
While I have seen quite an unexpectedly large number of “fundamental-converts” in my Trading Room over the last several months, I will continue to implore all of those that still hold steadfast to the old paradigms, which have been clearly invalidated over and over again for the last two years, to open their minds to the fact that sentiment is what moves metals. Until sentiment is ripe for a reversal, no “logic,” “reason,” or “fundamental fact” will cause silver to rally. When you accept that as a fact, then you have taken a large step towards the “dark-side.” And, this “manipulator-in-chief,” along with Lord Darth Bernanke, will welcome you with open arms.
So, for now, it is still quite possible that we can see one more drop of approximately a dollar in silver before we see the next rally. While it is not absolutely necessary to see this dip (which is why I am not suggesting for most to short it), it does seem more likely than not that it will be seen, as long as we are below 27.53 in the futures. But, once we move over the 27.53 level, then silver has at least another two dollars higher to run before we may be ready for the final decline to end the two year correction.
But, there are two main possibilities I am seeing from a pattern standpoint at this time. While the 29 region can represent another topping region for silver before we drop to the 22/24 region to complete this two year correction, we can also see silver extend beyond the 29 region to as high as the 33/34 region on this next rally, which will only then set up the decline to the 22/24 region.
While there is still the possibility that we can simply begin our parabolic rally from this region in which we currently find ourselves, I do not view that as the higher probability potential at this time. But, it is still for this possibility that I suggest investors be accumulating a longer term position in this region, and leave some powder dry for the potential to hit my long term target in the 22/24 region, or for the break out signal over the 35.50 region, whichever comes first.