We’ve seen a minor changing of the guard over the past month, with the previously hated precious metals complex coming back into favor, while the Nasdaq Composite (QQQ) has corrected sharply. The leader in the precious metals space has continued to be silver (SLV), which is up 11% thus far in Q1, clawing back all of its year-to-date losses. This relative strength amid weakness in the major market averages is a good sign, as is the metal’s outperformance vs. gold (GLD), which denotes a healthy precious metals market. Even better, despite the strength, we haven’t seen any signs of exuberance yet in silver, and bullish sentiment is resetting. Let’s take a closer look below:
As shown in the chart below, sentiment has improved considerably over the past few months, with bullish sentiment for silver sitting near 50% bulls and the long-term moving average plummeting from a reading near 80% to closer to 40%. This 4000 basis point improvement in bullish sentiment has helped to reset the silver market from an unhealthy amount of optimism in early February, which impeded the market’s parabolic rally. While this current reading of 40% bulls for the long-term moving average is nowhere near a buy signal, which we last got in 2018, it is a massive improvement and nearing a level where we’ve seen cycle lows in the past. At the most recent cycle low in December, the sentiment moving average dipped to 33% bulls before the metal turned higher and put together a two-month performance.
(Source: Daily Sentiment Index Data, Author’s Chart)
Over the past week, bullish sentiment for silver has continued to climb, but despite this rally, bullish sentiment has not become frothy like in past rallies and is sitting near 50% bulls. These subdued readings combined with the elevated readings from January and February being rolled off have moved this indicator to a neutral reading with a slight bullish tilt, from a previous neutral reading over the past month, and a slightly bearish reading in early February. When this indicator moves to a slightly bullish reading, this is a tailwind for rallies, given that silver can climb a wall of worry.