By Kris Sayce, editor, Casey Daily Dispatch
It’s the original “altcoin.”
We don’t mean Ethereum or Litecoin, or any one of the thousands of other cryptocurrencies on the market.
We’re talking about silver.
For gold bugs who want a bit of spice in their precious metals holdings, silver has always been the go-to metal.
And in recent times, its relatively low price and volatility has been a great way for gold bugs to trade for short-term gains, while gold gives them their longer-term wealth protection.
The question, however, is this: after one of the most volatile periods for the metal since 2011-2012, is now the right time to place a bet on the original “altcoin”?
We share our take on it below…
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At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
Today, we follow up on chart analysis we published on June 30, in which colleague Imre Gams gave his take on silver’s price action. We revisit that analysis and share with you where the price could be heading next.
Silver Failed to Break Higher
When we last looked at silver two months ago, Imre explained that silver appeared to be forming what traders refer to as a “bullish triangle.”
In simple terms, that chart pattern – whenever it appears – often hints that the price could move higher if it breaks out of the pattern. If so, it would mean a higher silver price.
However, there was a caveat. Imre also explained that triangle patterns can be tricky to trade. This makes sense. But it’s often the kind of caveat that draws scorn from non-technical analyst types.
But this is an important thing about technical analysis. It doesn’t claim to predict events with 100% accuracy. It’s about seeing how chart patterns have played out in the past, and then using that analysis to predict the probable outcome.
As far as we’re aware (and as you know, your editor isn’t a charting expert, that’s why we drag Imre in to help us), there isn’t a charting pattern that predicts price action 100% of the time. It’s a game of probabilities instead.
So let’s get back to that triangle chart pattern. Imre reminds us how it works:
A triangle’s key characteristic is the sideways appearance of price action. A market can trade sideways for a considerable amount of time before it’s ready to take off once again.
The trap that many traders fall into with triangles is that they pull the trigger too early. They will then sit through a choppy market, or even a market that trades against them. Those same traders will likely either get stopped out or bail on their positions.
If you’ve traded before, you’ll likely know that feeling. Just as the market forces you out… that’s usually when the market decides it’s ready to start trending.
As Imre told us:
I’ve been there before and it’s not a great feeling to realize that you had the right position all along… you just got in too early. That’s why it’s important to wait for the confirming price action.
Because there’s a huge difference between a potential trade idea and a trade trigger. A trade idea can be a setup that’s taking place on the price charts, such as the potential triangle forming on the silver chart in June/July.
But a trade trigger is a specific event that must occur for you to take a position and place your capital at risk. I call such an event “confirming price action.”
And as Imre noted in that essay on June 30, he needed the silver price to break out higher and if it did, it would increase the “odds of silver going even higher.”
However, the silver price never broke out of the triangle. Instead, it went lower, establishing the boundaries of a new trading range.
Silver Is Setting Up to Move
So with that new trading range in place, we thought it would be a good idea to ask Imre if the chart gave us a clue about where the price could go next.
Here’s what he told us:
As you can see on the price chart [below], I’ve marked out a significant band of resistance that spans approximately from $26.78 to $28.
Silver has run into this area twice in recent times. The first time was in August 2020 and the second time in May 2021. Both times, sellers stepped in and drove prices lower.
You can also see that Imre has marked the key support level of $22.69 on the chart. This marks the lower boundary of the trading range.
What does that mean for the price action? According to Imre:
Until we break out of either side of the range, silver will continue to trade sideways.
The takeaway is that for longer-term investors, you could look to build a position at the bottom of the range, or even wait for the range to break lower to buy silver at a more attractive price.
For momentum traders such as myself, I’ll only turn bullish if we break above $28 and turn bearish if we break below $22.69.
And what about the short-term traders? To our untrained eye, this range itself looks like an opportunity to make short-term trades. We asked for Imre’s take on that idea:
Yes, trading the range itself could present many opportunities. Range traders will aim to buy near the bottom of the range and become sellers as the price nears the top of the range.
Just remember that sideways ranging charts never stay that way forever. Buying at the bottom of the range isn’t guaranteed to work if the price breaks lower out of the range.
Here’s the Takeaway…
A price chart can tell many different stories. The novice trader will often look at a chart and try to make it fit into one outcome. They’ll look at it and say it’s “bullish” or it’s “bearish.”
The reality is that it may be both… or neither. It depends on your personal risk tolerance, your approach to investing, and your timeframe. That means, if you can be flexible with your trading strategy, you may have many options for how to play silver over the next few weeks.
We know that silver is a popular precious metal for long-term investors. But because there are short-term trading opportunities, too, we’ll continue to keep a close eye on the silver price action.
Editor, Casey Daily Dispatch