The silver mining industry, after more than 20 years of decline, came out of a prolonged hibernation. Volumes showed a strong increase, demonstrating the quality of the wave.
Then came along a strong corrective pattern which, unfortunately, is quite normal. So, where do the industry stand today?
I. Silver index?
How do we get around without an index for the silver mines?
A) Both the XAU and the HUI are important for gold mines. To evaluate silver mines, here is a selection of three mines.
Their name is of little importance, as the question is to understand if silver mines are a “buy” or not. The company’s name and it’s value are hidden, so that we can remain on track.
B) The mines must:
- Have more than 50 % of their reserves in silver.
- Be producing.
But their size is very different, the biggest being 30 times the sum of the market capitalization of the smaller ones.
The ratio reserves/value range from 2 to 15.
Now let us look at the graphs.
II. Technical analysis.
Where are we standing?
A) All had the same pattern, exiting a canal and moving above the 150 days moving average. It is a typical beginning for a phase 2 (according to Weinstein), the volumes are strong and confirm the quality of the pattern (volumes removed from the graph for clarity).
B) After a very sharp increase which pushed the prices from a yearly low to a yearly high, in a range between x7 and x18, the stocks lost 50 %, following Fibonacci 50 % rule.
C) The 150 days moving average:
- After storming above the 150 days MA, prices have now settled on the 150 days MA.
- We can see that the price of many stocks are fluctuating around their 150 days MA, which indicates the strength of some of the mines over the others.
The backtracking on the MA is often a good “buy” indicator or a balanced risk/reward move.
III. What’s next?
Are silver mines a buy, again?
We are at the very early stage of a very long bullish silver market.
A) Basically, there are two ways to establish a position:
- N°1: in the beginning of phase 2 when prices jump away from the 150 days MA and out of the canal. But those days are gone...
- N°2: The second opportunity is when prices backtrack on the 150 days MA along with Fibo’s 50 % signal. Those are simple technical analysis tools with an effective track record.
B) Now is a good time to enter the sector, if you have not done so yet; you can also add on your holdings if you can or switch your “dogs” for top performers
The trend is so bullish, that short run trading could prove useless. The trend is on and should last. You missed the first run? Don’t miss the next one! There might not be a third opportunity…
This is only a very personal view and it should be seen as such.
Dr Thomas Chaize