There is a crude but important correlation between silver and the stock market, and the message shown in this chart is clear…
Much of what is written in yesterday’s parallel Gold Market update is equally applicable to silver, and it will not be repeated here.
Although silver has picked up significantly since its March low it has greatly underperformed gold over the past two years. But this is normal during the earliest stages of a major sector bull market, when gold is favored over silver.
On its 20-year chart we can see that silver remains stuck within a giant base pattern that started to form as far back as 2013. This chart makes clear that once gold breaks out to new highs against the dollar, then silver should break out of this base to enter a dynamic advancing phase.
The 5-year chart reveals that silver is battling a lot of resistance in this zone, so if gold should back off soon for whatever reason, like the stock market dropping hard, then it will likely drop back for a while too.
Here we should note that if the stock market does go into another down wave soon, then the Fed can be expected to print up another couple of trillion [dollars] to drive it back up again, which will be hyperinflationary and very bullish for gold and silver. Keep in mind that if the Fed (or its proxies) wade in here, buying stocks, they can head off any decline and get it moving higher again.
The 2-year chart for silver, with the S&P500 index shown at the top, is useful as it makes clear that there is a crude but important correlation between silver and the stock market, which can be expressed bluntly as “when the stock market tanks, it takes silver with it.” The message from this chart is thus clear—if the stock market continues to advance, courtesy of continued Fed pumping, then there is a good chance that silver will break out of its base pattern. But if the Fed “falls down on the job” and the stock market tanks again, so will silver. Big Money doesn’t care about either the economy or the unemployed—all it cares about is the stock market and how much it can make off of deals, etc.
On this chart we see that although silver’s overbought condition has neutralized in recent weeks, putting it theoretically in position to break out of its giant base, there is a lot of resistance above the current price that we can expect to turn it down if the stock market weakens.
Finally, on the 6-month chart we can see that silver is at a critical juncture here, with the 50-day moving average pulling up close to the price and the 200-day, and a small, potential head-and-shoulders top completing, so we can expect a bigger move soon.