Here’s Why You Should But the Next Dip in Silver By StockNews


© Reuters. Here’s Why You Should But the Next Dip in Silver

It’s been a great start to Q3 thus far for the silver price (SLV), with the metal gaining 9% in barely 20 trading days, helping to claw back some of its significant year-to-date losses. The bad news is that investors parking their money in silver miners have had a lost year to follow up a lost decade in the silver producer space. The good news is that these poor returns are forcing many long-time investors and newcomers to the space to throw in the towel, creating enough bearish sentiment to increase the probability of a durable bottom and a multi-quarter rally in the metal.It’s been a great start to Q3 thus far for the silver price (SLV), with the metal gaining 9% in barely 20 trading days, helping to claw back some of its significant year-to-date losses. However, silver is still down more than 7% year-to-date, which is contributing to very bearish sentiment surrounding the metal and the Silver Miners Index (SIL). The bad news is that investors parking their money in silver miners have had a lost year to follow up a lost decade in the silver producer space. The good news is that these poor returns are forcing many long-time investors and newcomers to the space to throw in the towel, creating enough bearish sentiment to increase the probability of a durable bottom and a multi-quarter rally in the metal. In addition, while the correction has been violent, no real technical damage has been inflicted. Let’s take a closer look below:

(Source: TC2000.com)

Beginning with the sentiment picture, we have to go back more than three years to see a similar level of pessimism as we are seeing currently, with the long-term moving average for silver diving off a cliff and currently sitting near 20% bulls. This is a massive sea change from where sentiment sat just over nine months ago during a poorly orchestrated silver squeeze attempt when bullish sentiment sat near 80% bulls. This means that we have transitioned from a market with four bullish market participants for every one bearish market participant to a market with four bearish market participants for every one that’s bullish. When everyone is a bull, and the sky is the limit for an asset class, the asset class typically corrects sharply, given that everyone is bullish and there’s no one left to buy. Conversely, now that the majority, there is almost no one interested in buying, with significant firepower if prices begin to head higher and investors decide they want to build up exposure.

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