Silver – A Mill Stone Or Jewelry?

Silver surged this week to break out of a tight trading range. In the December downdraft, the Silver chart had been trading in a tight range. Well, it obviously jumped off the rooftop onto Santa’s sleigh this week. A couple of critical points on the chart have been reached as we turn the calendar. A breakout to new four month highs is very bullish. The 40-week moving average sits just above so watch closely for resistance or a breakout and reversal. The last two years have had 8 breakouts that surged through the 40-week moving average and stalled shortly after.

While I’d like to say it is up and away, the silver miner’s ETF (SIL) didn’t really cooperate. The chart above is weekly, but I have shown the daily chart below as there is no breakout to look at.

Over the next week I want to see the top silver mining charts start to accelerate. This looks like early days in the move, but if the miners don’t follow, it is going to be hard to make money. The miners usually have to outperform the metal in big moves up. Lagging is hardly bullish.

More importantly, the big picture SIL suggests a meager move off the bottom compared to the move in 2016. The chart below is weekly. Notice how in 2016, the acceleration was huge with five surging weeks in a row. This is not happening yet.

The relative outperformance shown on the top two panels is important. Compared to the $SPX on the purple area chart, there has been a breakout above the down sloping trend line. That is usually one of the traits for new trends to attract money.

On the top panel, this indicator (SCTR – Stock Charts Technical Ranking) compares the price action across the ETF community. The sudden surge the last few weeks suggests this silver miner’s ETF is outperforming other ETF’s. Actually, the other ETF’s are fading away or falling while this one is holding its own.

Keep watching this ETF. If price starts to accelerate, you’ll want to get on board. If it doesn’t, let it be someone else’s mill stone.