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Silver: How to Gauge the Crowd’s Mindset

Watching out for sentiment extremes helps you avoid getting “caught up with the crowd”

by Bob Stokes
Updated: June 04, 2020

Simply put, a market sentiment extreme is a situation when most everyone has already taken a bullish or bearish position in a financial asset, leaving almost no one left to buy or sell.

Silver provides an excellent case study.

Let's briefly go back to April 18, 2011, when our U.S. Short Term Update showed this chart and said:

RiskOnSilver

The 10-day average of Market Vane's Bullish Consensus has now risen to 93.3%, reflecting a broad consensus among advisors that silver will continue even higher. The Daily Sentiment Index of traders pushed to 97% bulls as of Friday's close... Extremes are extremes and have to be recognized as such otherwise one gets caught up with the crowd and fails to extricate themselves at a reversal.

Just a week later, silver hit a high of $49.91 and in less than three weeks, the price had plummeted 35%.

Now, sentiment measures are not always precise timing indicators. Markets can stay overbought or oversold for a long time. Still, extremes can be quite valuable when used along with the Elliott wave model, which was also signaling a turn in silver's price trend in April 2011.

In the past nine years, silver prices have traded well below their 2011 high, but there have been rallies.

This brings us to 2020.

On May 11, a well-known precious metals website sported this headline:

Silver prices to soar by 40%+, here's the case...

They proceeded to outline a bullish case that supported their views of even higher silver prices to come.

They may end up being right, however, our May 20 U.S. Short Term Update showed this chart and said:

TradersSilver

[Silver]'s rally has coincided with a surge in the Daily Sentiment Index to 91%. Traders are more optimistic toward silver's future prospects than at any time since the peak at $19.69 on September 4, 2019 (95%). The only other comparable reading was on February 21 of this year, when the DSI rose to 87%.

Just like back in 2011, today silver's Elliott wave pattern provides even more insight into what to expect next for the precious metal.

Plus, our silver updates in June mention a key price level. If that price level is breached, our analyst says the rally is likely complete.

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Pay Attention to "Triangle" Formations in Chart Patterns

It's well worth closely watching the classic chart formation known as a "triangle."

Here's why: Meaningful price moves usually follow their completion.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, notes:

A triangle appears to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility.

The price move that follows the completion of a triangle usually occurs with increasing volume and is often quite powerful.

There's a timely reason for calling your attention to triangles.

The chart formation of a widely traded financial asset (not the stock market) recently completed a triangle formation. A price thrust followed.

Now, our analysts are telling subscribers what to expect next.

You can read about it now in 2020 Foresight: 5 Market Trends 99% of Investors Will Miss.

These insights come directly from our flagship Financial Forecast Service.

It's premium, subscriber-level content -- free to you for a limited time.

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