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Silver Has High Breakout Potential in February


Silver's strong end to January has created a bullish posture now.

The Follow Through

Here's where SLV's potential gets interesting. If Bar #1's high is broken what is the probability of Bar #2's high being broken? 79%. And the probability of SLV falling back to $29.72 is just 8.9%. That's a setup which says that as the price rises the probability of it continuing to rise goes up as well.

Moreover, if Bar #2's high is broken it would then create the same bullish breakout on the monthly chart.

A close in February above the December high should be seen as a reversal signal. The probabilities for SLV on a monthly basis look like this:
  • Break previous (Bar #2) high? 86.7%
  • If Bar#2 high is broken, chance of Bar #3 high being broken? 56.4%
To break the December high SLV would have to move $1.78. If that happens in these early weeks, and we've looked at the strong probabilities of that occurring, then that would constitute a very average move for SLV to move above its previous high during a month – the average is $2.00. Moreover, it sets up a potential large breakout move because the average monthly range (high to low) is $3.90, which would put SLV in range of an even longer multi-month breakout at $34 in March.

One of the hardest things for people to let go of is the idea that markets are predictable. They are not. They are probabilistic. This analysis – due to space constraints – cannot cover all of the background affecting the silver market. Fundamental analysis is a different discussion but equally important. In my experience it is the marriage of these quantitative techniques with strong fundamental analysis that creates the best opportunities for great returns. This setup in silver is not perfect but it is strong enough that it is worth exploring and watching as February progresses.
No positions in stocks mentioned.
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