The beleaguered metal just scored another dubious milestone.

Despite all the ink and air time given to its “bugs”, the precious metals market has had a paint-dryingly dull 2 years with gold and silver stuck in a relatively tight range. At the moment, though, silver bugs might be pining for a “home” in that range still. That’s because, after breaking its post-2008 Up trendline last month, the metal, as represented by the iShares Silver Trust (SLV), is now breaking below its 2-year low set just about a year ago.

Obviously, dropping below that 2-year low, set in July 2017 near 14.50, is a dubious milestone that silver bulls would prefer not to see. It is reality, though, as today’s closing price on the SLV was 14.42. Absent an immediate recovery, this potential lack of support also paves the way for still lower prices in the SLV -- and a possibility of a test of its 2015-2016 decade lows near 13.

So is there any hope for the metal -- or is it destined for further dubious milestones? In a Premium Post at The Lyons Share, we take a more comprehensive (and interesting) look at the silver market to assess the odds of a turnaround.

If you are interested in our Premium level charts and analysis, check out The Lyons Share. You can also follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Silver is testing the top side of its recently broken downtrend line from its 2011 top.

A few weeks ago, the precious metals crowd was buzzing. Gold had broken out to 11-month highs and, perhaps more importantly, the iShares Silver ETP (SLV), had just broken the Down trendline stemming from its 2011 peak (on a log scale). Talk of the long-awaited resumption of the precious metals bull market abounded in financial social media. The past few weeks have taken much of the shine off of that outlook,however.

Precious metals have been heavy metals lately, losing much of their recent gains. But while that is disheartening for gold and silver bugs, the selloff has brought the metals back near the vicinity of their recent breakouts. For the SLV, that means testing the top side of its broken post-2011 Down trendline near 16.30.

So while silver has had a rough couple of weeks, it is only a short-term blip -- and the metal is testing an area that may serve as a good excuse for the metal to bounce. Obviously, if SLV fails to hold the trendline, it would be significantly bad news for precious metals bulls. Even if it does hold the trendline, however, it doesn't mean that SLV is necessarily off to the races.

Back in July, we mentioned 3 reasons why silver may be in store for a rally. The primary reason was because SLV was testing its Up trendline stemming from the major low in 2009. Secondly, seasonality on the metal was bottoming out, on an annual, historical basis. Lastly, the so-called "smart money" Commercial Hedgers in silver futures were showing their smallest net short position since near the market bottom in January 2016. That was a significant potential tailwind for silver. And indeed, the metal jumped almost 20% from that post to the recent peak.

It is a different story now. While the Hedgers' net short position is not at record levels like it was at the silver peak in April, it has grown substantially since the July post. So while it can potentially expand further, the position certainly does not represent the possible tail wind that it did just a few months ago.

So the trendline may offer a silver lining to SLV's recent decline -- but it may only be temporary.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. Considering what we believe will be a very difficult investment climate for awhile, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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Badly dented over the past 12 months, could the price of silver finally find support at this key technical level?

Silver has had a rough go of it. After essentially quadrupling in a parabolic blowoff from 2008-2011, the metal proceeded to lose roughly 90% of those gains in the subsequent 5 years. Using the iShares Silver ETF (ticker, SLV) as a measuring stick, the round trip went basically from 9 to 48, then back to 13. A promising first half of 2016 had the SLV back up pushing 20 by July -- and getting precious metal-heads lathered up again. However, the rug has been pulled back out from underneath them as it has been back to the woodshed again for silver prices over the past year.

There have been a few head-fakes along the way, including a mild bounce into April of this year. However, as we noted in a post at the time, silver speculators had become way too exuberant, especially for such a meager bounce, to expect much more upside at that point. Indeed, the SLV immediately proceeded to drop 14 days in a row, leading towards the depths at which we find prices today.

With SLV now pushing back below 15, metal-heads have become discouraged again, speculating as to what miracle catalyst can come along and save the plummeting metal once again. Well, as it happens, there may possibly be a chance that a key technical level nearby can serve as such a catalyst.

The level to which we are referring also pertains to the SLV. Specifically, it is the lifetime Up trendline in the SLV (on a log scale), beginning at the lows in 2008 and connecting the lows in 2015-2016. Presently, the trendline is intersecting roughly the 14.40 level.

The SLV spiked down to 14.44 Monday before rebounding strongly. Follow through yesterday has the SLV up just shy of 15. Could this possibly be the bottoming catalyst silver bulls have been looking for?

One problem we have with the idea of this trendline being a catalyst is that, well, it’s not necessarily a trendline. It merely connects 2 points -- we prefer at least 3 touches before a line truly qualifies as a trendline. That's not to say this line is meaningless, or that it won’t hold.

We have displayed countless similar trendlines over the years either in our Chart Of The Day feature or in our #TrendlineWednesday feature on Twitter that have worked out beautifully. These 2-touch trendlines have especially been effective when they are of a long-term nature like this one. So we certainly wouldn’t discount the possibility that this line is indeed a silver lining for the metal and may produce, at least a short-term bounce.

Of course, there are obviously other factors to consider besides this simple trendline, or even the price series in general. For example, what is the status of the record speculation on silver futures that served as the basis for our bearish piece in April?

In a premium post at The Lyons Share, we update the trader positioning situation in silver futures to see if it is still serving as a head wind to prices -- and by how much. We also look at other factors to determine if this trendline has company in suggesting a bullish stance toward silver -- or if it is on its own.

If you want that “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share.

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Commercial hedgers have never had a larger net short position in silver futures.

We talk about investor sentiment fairly often in these pages. Of course, sentiment analysis is well known for its “contrarian” nature, i.e., that “fading” the crowd often ends up being the correct move. What folks often get wrong with sentiment indicators, however, is that going with the prevailing opinion is usually the right play -- until the opinion becomes too widely accepted. That is, sentiment-based indicators only become contrarian when they become extremely one-sided. Based on one measure, we are seeing extremely one-sided sentiment in the silver market.

That measure is the positioning among Commercial Hedgers in silver futures, which is now at the largest net short position (-112K contracts) on record, going back to 1986 (according to the CFTC’s Commitment Of Traders report).

Why is this significant? Commercial Hedgers are often considered the “smart money”. Again, this isn’t because they are always right. They take positions opposite trend-following Speculators, e.g., hedge funds, etc. Therefore, during long trends, they can be on the wrong side for awhile. However, at important junctures and turning points, when positions typically become extreme, they are almost always correctly positioned.

Of course, we always have to add the disclaimer that these positions can certainly get more extreme -- and more wrong, temporarily -- before they start paying off. Indeed, last spring, we noted that the Hedgers’ net short position in silver futures had reached a record then. After a brief dip, silver prices proceeded to tack on about another 15% over the next few months while the Hedgers’ net short position grew even more extreme. Eventually, silver prices would tumble some 25%, rewarding the Hedgers’ positioning.

Likewise, silver prices could possibly continue higher in the near term while the Hedgers’ record net short position continues to grow even larger. However, one of the disturbing things for silver bulls must be that, despite the record bullish sentiment (e.g., speculator longs), prices are still well below last summer’s peak. Thus, in our view, the eagerness of the crowd to adopt such a bullish stance relative to the moderate gains in the commodity is a bit unsettling.

Will silver continue higher in the face of this record positioning? It is possible in the near-term. However, to adopt that stance is to join an already unprecedentedly crowded position. Historically, that is when one should be fading the crowd.

Like our charts and research? Get an All-Access pass to our complete macro market analysis, including tons of charts and ideas like this EVERY DAY, at our new site, The Lyons Share.

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Commercial Hedgers are at their largest net short position in silver futures in over 10 years.

We’ve talked about the CFTC’s Commitment Of Traders (COT) report on occasion in the past. To refresh, the COT tracks the net positioning of various groups of traders in the futures market. One such group is comprised of Commercial Hedgers. As their name implies, their main function in the futures market is to hedge. By definition, therefore, they typically build up positions contrary to the prevailing trend. As a result, this group is typically correctly positioned (and extremely so) at major turning points in a market. It is for that reason that the group is usually referred to as the “smart money”.

In a development similar to that which occurred last October (fyi, this post mirrors one from back then almost verbatim), Hedgers’ current net position in silver futures could reasonably be considered “extreme” – on the short side. That is because these Hedgers are net short the most silver contracts in more than 10 years.

Specifically, Hedgers were net short 77,242 silver contracts as of March 22. That is their largest net short position since January of 2006. This is somewhat startling, really, considering the price of silver experienced a veritable parabolic blowoff from 2010-2011.

And it is also likely not a good development for silver bulls. There are certainly challenges to using the COT data as investment guidance. For one, these Commercial Hedgers are not always correctly positioned at key junctures, as we have seen recently in the Euro currency futures. Secondly, extremes in positioning can always get more extreme, as price continues in its prevailing trend.

Therefore, it is entirely possible that the price of silver continues to climb in the near-term as the Hedger short position presumably gets larger. However, the current positioning would not be on my wishlist if I were a silver bull. I would rather take a stab long-side when the Hedgers were on my side – and the Non-Commercial Speculators (on the other side of Hedger positions) were closer to net short.

Particularly concerning for bulls, perhaps, is the eagerness to rush in to the long side on the part of Speculators, in the context of a solid but unspectacular rally. Yes, the metal rallied over $2 (~15%) from its December lows. However, in the context of a $35 decline over the past 4 years (>70%), that does not seem to be a move commensurate with such a large net-long build on the part of Speculators.

Again, the COT analysis is more art than science. The metal has gotten demolished and it certainly could bounce further in spite of the large Hedger short. If it does, it would probably be a good longer-term sign for the metal. However, that is a small, rather subjective silver lining for bulls as it pertains to the COT positions.

It would have been much more preferable for silver bulls had Speculators been more skeptical and slow to buy into the rally -- literally and figuratively. Unfortunately for them, however, such a wall of worry is hardly descriptive of the current environment.

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More from Dana Lyons, JLFMI and My401kPro.

http://allstarcharts.com/problem-see-silver/

One of the most important themes that we focus on every day is the idea that the more times that a level is tested, the higher the likelihood that it breaks. This goes in both directions. A good example of an upside break after multiple tests of resistance is $HD the last few days. I loved that chart coming into the week. But to the downside, I think Silver is testing this key support way too many times for comfort. It looks to me like the resolution here is going to be to the downside.

First, here is a weekly line chart showing these lows just below 19 tested successfully 3 times. Where I come from triple bottoms and triple tops are very very rare, if they even exist at all. In all likelihood, as I mentioned on Fox Business in late May, we’ll see a 4th or 5th test that eventually cracks the support. Well as we can see in this chart, we’re seeing just that: a 4th test of support in a commodity that is still in a 3+ year downtrend:

We have yet to see any evidence that this downtrend is reversing. In fact, with each bounce off this key support level, the sellers have become less and less patient. Notice how each rally off support has been weaker and weaker. The theory is that the next bounce won’t be much of a bounce at all and support will break leading to a bigger sell off.

The next chart shows the daily bars with a downward sloping 200 day moving average. I find it hard to believe, from where we sit here today, that this is a bottom and not a continuation pattern. Everything in my experience tells me to lean short:

But I want to see a break first. I think there will be plenty of downside to take advantage of upon a break of support. The first target I see is the $3.60 measured move target from the amplitude of the recent bounces off support. This takes us to around $15. But the ultimate target I see is just under $14 which represents the 161.8% Fibonacci extension from the first bounce off this key support last summer. Symmetrically this makes the most sense to me since this support just under 19 is also the 161.8% Fibonacci extension from the first bounce off the 2011 lows. The market likes to rhyme like this. So I’d look to cover at 15 and the rest at 14 constantly reevaluating the whole way down.

Based on the distance from our ultimate target, I think it’s worth it to be patient. But recognizing this development ahead of time can be a huge advantage when it comes to preparing for the moment. So I thought I’d share what I’m seeing with you guys.

Patiently waiting for a break

JC

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The Precious Metals complex is capping off its best week since early October with Gold, Silver, Platinum and Palladium adding 3.6% as a group just prior to the open of Friday's trading.    

Gold and Silver are each breaking a 15-month descending trend line, while Platinum is completing a bullish Three Inside Up pattern, marking a successful retest of its own trend line break in January.  Typifying the week's constructive move higher, RSI is just peaking into bullish territory >50 in each case.