Silver Bullets

  Last week we discussed the 2011 chart for Gold. This week we look at the Silver chart for the last 2 years.....

1.  Silver, unlike its stodgy cousin Gold, is a MANS market. The 28% mid year rally in Gold was dwarfed by the 60% rally in Silver the first four months of 2011. In fact, that 60% rally was really the last half of an 8 month 150% rally which began in Aug 2010.  

2. Of course the pullbacks are Mansize too. We have two drops in 2011, which by themselves are both over 30% - in a matter of days. That is as vicious as it gets. 

3. Looking at this chart, Silver has only 3 gears - Long steady rallies, sharp corrections, and sideways trading. Note: there are no long steady declines or sharp rallies - like you find in bear markets & popped bubbles. 

4. Long sustained rallies punctuated by ultra-sharp pullbacks is textbook Bull market behavior. Price action like this is how we know silver is not in a Bubble, but rather in a still very young Bull. 

5. From peak to trough this year, Silver has corrected only about 40%. The last major correction in Silver (in 2008) was closer to 55% off. This suggests silver could correct further.

6. In terms of Time, silver has spent 8 months correcting. Prior corrections in this bull have lasted 8-12 months. This suggests another few months of down is a very plausible scenario.

7. The 8 month rally which culminated late April was so hypnotic it had the effect of sucking in newbies to the Silver Market. Bagholder is personally aware of multiple newbies who got long in the $40's. Until most of those folks get flushed out - this Bull is too heavy to resume its upward path. 

8. Despite the 60% rally to begin the year, silver finished the year down - giving new meaning to the word volatility

9. Having now given back 2/3 of the gains since the last bull upleg began (in Aug 2010), Fibonacci would suggest the Silver correction has run its course. 

10. If the January 2011 bottom of $27 holds on this current correction, It would make a technically beautiful double bottom (11 months apart) on a long term chart. 

11. A 150% rally from $27 would put us at $67 - while that may seem light years away, history says its as little as 8 months away. 

12. Downside risk from here is probably minimal as there is tremendous long term support in the $19-$20 range. 

13. Bagholder is of the opinion this Bull is so strong the next upleg will be bigger in percentage terms than the last, the only real question is will it commence from the $27 double bottom, or after a trip down to $20 to test the Aug 2010 breakout. Either way, Silver is poised for a big year.