The most bullish chart on the face of the planet

En artikel om cup & handleformationen i silver som ser ut att aktiverats den här veckan:

The most bullish chart on the face of the planet

So here is the chart. It shows silver since 1975, presented on a log scale. (A logarithmic chart scales percentage moves, ie a move between $10 and $20 looks the same as a move between $20 and $40, or a move between $40 and $80.)

Silver price chart

When considering this chart, I’m going to ignore the huge bullish fundamental case for silver. The monetary factor; the increasing industrial usage; the shortage of new mining supply; the impossibly large short position on the futures exchanges which will one day lead to the mother of all short squeezes.

I’m just going to look at the technicals.

For all silver’s volatility, it is actually an extremely symmetrical metal when you take a step back and look at the longer term. I see forming here a massive ‘cup and handle’. The cup is outlined by the two green lines, with the rims of the cup at $50 – the high reached in 1980 and earlier this year. The handle is now starting to take shape on the right hand side of the cup’s rims. It probably needs another year or more to complete.

A ‘cup and handle’ is a ‘bullish continuation pattern’ – a run up to a level of resistance (in this case $50) followed by a period of consolidation just below that level of resistance, followed by a breakout to new highs. The eventual target of the breakout should be something like the same distance from the bottom of the cup to the top. What is so compelling is the sheer scale – over 30 years – of the formation.

Silver’s low was $4, the high $50. An arithmetic chart would therefore target a high of just below $100. But this is a log chart. From $4 to $50 is a 1,250% move. A 1,250% move from the $50 breakout point gives us a target – many years away, of course – of $625 per ounce. I try not to use exclamation marks when I write, but in this case I have to – $625!

Why you should steadily buy silver

I emailed James to ask him what he liked so much about the chart. He sees the same pattern as me. He said, ”It’s technically perfect”.

Summarising the rest of his email, he says: ”The sell-off after the 1980 peak went to historic lows in real terms as well as in terms ofthe ratio between silver and gold. Even though it has been rising steadily since the 1990s, there is still negative sentiment in the form of apathy, fear and neglect – this is still stage one sentiment.” (By that he means those negative feelings are not common in a bull market that is more mature).

”The pattern is huge not just in terms of the 90% collapse from the 1980 high but also in terms of duration. It is a massive cup formation, but there is no handle. Everything there is part of the cup (ie the accumulation pattern). I think I first drew this chart over ten years ago in my newsletter, and I have been watching it form ever since. It is a classic textbook case. Then of course you have the positive fundamentals too.”

Regular readers will know that I own silver, but I have been cynical about the metal. It always shows promise, but never delivers. However, I have been extremely impressed by the recent strength silver has shown in the face of European meltdown. It briefly went to $26, outside of US trading hours, and has otherwise held firm about $30. It’s now at $34. In other years it might have fallen by a lot more.

So I have been accumulating more. But I am not in any rush. This is a multi-year pattern, and we do not yet have the handle of the cup. For it to form, silver must trade in a range for another year or so between $30 (maybe $26) and $50. A significant move out of that range would invalidate the handle formation.

Take advantage of pullbacks to accumulate more. And when it eventually breaks out above $50, who knows, the sky’s the limit. It may once again, just as it did in 1980, take a mere 1,000 ounces of silver to buy the average UK house.

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8 reaktioner på ”The most bullish chart on the face of the planet

  1. ”it probably needs another year ore more to complete” Vad tror du här? det blir ett litet handtag om silver skulle gå mot 50$ nu. Flagg eller vimpelformationen du visat tidigare som bildats sen senaste ggn vi nosade på 50$ har varit mer bullish tycker jag. Eller kommer den vimpeln bli omvänd nu från botten och där har vi handtaget?

    • Hej Dave, idag ska jag komma med lite gnäll 🙂

      Vi får hoppas att det inte handlar om en Cup&Handle, då typiskt dessa formationer ska handtaget ta ca halva tiden av koppen (30 år ==>15 år). Så länge vill iaf inte jag vänta! 🙂
      Vad vi har är högst troligt istället den ovanliga sk badkars-formationen, som är minst lika bullish som en Cup&Handle fast där själva handtaget ser ut som en kant, dvs en oftast ”skarp” (ganska djup och relativt kortvarig) rekyl strax innan utbrott och ”koppen” får en badkarsformation med mer utdragen botten och brantare väggar.
      I kommentarerna till länken om att silver skulle ha en cup&handle kan man fö läsa flera inlägg med liknande invändningar.

      • ”då typiskt dessa formationer ska handtaget ta ca halva tiden av koppen”

        Från vad jag sett kan detta variera kraftigt.

        För alla de som inte köper att detta är en Cup & handle, det är en tydlig flaggformation i grafen och taket är brutet (om kursen stänger över 28,5 på fredag). Priset ska göra ungefär samma sak kortsiktigt även om det inte är en cup & handle.

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