I’ve been buying the dip in silver since it broke out to ten-year highs last April. The chart indicated that it would make a quick run to retest the $50 all-time high. That hasn’t happened so far, but I continue to buy as the risk/reward seems very promising.
Recently, I discovered the idea that silver is in a 50-year cup and handle formation. This chart is from investinghaven.com
They wrote back in January:
“The silver price chart over 50 years shows how a secular breakout of the cup and handle formation is in progress. The recent drop is a backtest of the bullish breakout level. There is one full quarterly candle above the breakout point. This can be huge, provided silver closes above $28.8 an Ounce on MarCch 31st and June 30th, 2025. The bullish (high probability) outcome we see on this 50-year silver chart: silver moves to $50.25 in 2025.”
A cup and handle is a bullish technical chart pattern
The pattern has two distinct parts:
- The Cup:
- Shape: Resembles a "U" rather than a sharp "V," indicating a gradual decline followed by a recovery.
- Formation: Prices drop from a peak (left rim), bottom out, then rise back toward the initial high (right rim).
- The Handle:
- Shape: A shorter, sideways consolidation or slight pullback after the cup, often sloping downward.
- Formation: Represents a pause as the asset builds momentum before breaking out. Volume typically dips during the handle, then spikes on the breakout.
The breakout occurs when the price exceeds the resistance level (the peak of the cup), confirming the pattern and signaling a potential sharp rise.
Thomas Bulkowski – in his famous book Encyclopedia of Chart Patterns (if you don’t own a copy, buy one) – estimates a success rate of 60% to 70% for cup and handle patterns in equities, assuming a breakout above resistance occurs with strong volume.
About 20% to 30% of breakouts fizzle out, especially without volume confirmation.
To find the price target, you measure the depth of the cup by taking the vertical distance from the peak (resistance level) to the lowest point of the cup.
Silver’s cup peaked at $50 (1980/2011) and bottomed at $14 (2015), the depth is $50 – $14 = $36.
Then, you add the Depth to the Breakout Point. The 50-year breakout point is $50 + 36 = $86.
Silver is currently trading at $35.18, which is a new high going back to 2012. The next stop is $50 and after that, we are off to the races.
The way to play it is to buy the Sprott Physical Silver Trust (PSLV), now trading at $11.68.
All the best,
Christian DeHaemer
Outsider Club
P.S. Full disclosure: I own silver, silver ETFs including PSLV and SLV, and silver miners.
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