Tickers in this Article: SLV, SLW, CDE, PAAS
Silver gapped higher yesterday morning on large volume as the metal continued to rise following a spectacular run over the past two months. However, after hitting new highs, silver reversed course and closed well off its highs on huge volume. In fact, the metal, as represented by the iShares Silver Trust ETF (NYSE:SLV), had the highest volume bar in its short history. Unfortunately, this is not a great sign for what lies ahead. When a stock or financial instrument records its highest volume bar on a gap after a prolonged trend higher, it often signals an exhaustion top. While an exhaustion gap can mark the beginning of a consolidation or even a top, traders should really focus on the subsequent trading action to determine market participants' appetite for buying weakness. While the action in SLV was ugly on the reversal bar, it didn't even close under the preceding day's low, and SLV remains well above support levels.


Source: StockCharts.com

The silver miners actually started to diverge from the metal earlier in the morning on the November 9 reversal. Most silver miners ended the day with a similar exhaustion gap to the metal. This group was really getting overheated, so this move may mark the beginning of a rest break for the group.

Silver Wheaton Corp. (NYSE:SLW) has had a remarkable run from its bear market low of $2.51 in November of 2008. SLW had cleared a base in August and then a smaller consolidation in early November. It cleared the small base in November on a breakaway gap, so this could be a logical area for SLW to pull back to after the sharp reversal on November 9. Traders should monitor this area for possible support as SLW still remains in a strong uptrend.


Source: StockCharts.com

Pan American Silver Corp.
(Nasdaq:PAAS) has followed an almost identical path to SLW. It cleared a base in September and continued higher in November after a brief pause. Traders should monitor the $32 area as a possible support level on further weakness. (For relating reading, check out Trading Gold And Silver Futures Contracts.)


Source: StockCharts.com

Coeur d'Alene Mines Corporation
(NYSE:CDE) gapped higher on the 9th as well, and reached as high as $26 that morning before reversing course and closing near $23. CDE also spent more time consolidating in October than its peers, which means that with more traders involved at this price, the area may be more likely to offer support. The volume that accompanied the reversal on the 9th also wasn't as drastic as the volume with the other miners. Whether that actually translates to less selling pressure remains to be seen.


Source: StockCharts.com


Bottom Line
The fact that this condition occurred for the entire group means that it was probably accompanied by institutional selling pressure. Silver has been rallying for months and it was starting to move in a climactic fashion. While silver remains in a strong trend higher, the reversal on the 9th is a clear warning signal that the move was becoming overdone. Whether this marks a top, a minor blip, or the beginning of a consolidation remains to be seen; however, the drastic volume is suggesting that this was indeed climactic and that silver may be ready for a prolonged breather. (For more, see Trading The Gold-Silver Ratio)

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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