Silver (SLV) has broken the $22 level and is now at its lowest levels since July of last year. Taylor Dart explains why bulls need to make a stand, otherwise silver could fall to $20 before the end of the year.While it’s been a rollercoaster ride for gold (GLD (NYSE:GLD)), silver (SLV) has been much more volatile recently, plunging 4% on Wednesday to close below the pivotal $22.00/oz level. This key level represents a zone where the metal broke out from in July 2020 ($21.20/oz to $22.00/oz), and any break below the lower point of this range would be a negative development. Fortunately, the bulls are trying to play some defense in this area, and at the same time, we’re seeing sentiment move onto a short-term buy signal. In the past, sentiment buy signals have led to strong forwards returns for the metal and typically contained any further downside to 10% or less. This suggests that we are likely nearing a bottom in the silver price or have already stuck one. However, even more, important than sentiment in the technical picture, which sits at a critical point. Let’s take a closer look below:
(Source: Daily Sentiment Index Data, Author’s Chart)
As shown in the chart above, the violent 8-month correction since February for silver has finally forced many bulls to throw in the towel, with bullish sentiment sliding from 78% in February to just 20% this week. This massive erosion in bullish sentiment suggests that just 1 in 5 investors are bullish on silver, down from nearly 4 of 5 investors being bullish as we headed into the back half of Q1 2021. This is great news for the bull camp on a short-term basis, given that extreme pessimism typically translates to durable bottoms in the precious metals space. The last time sentiment was this bad was during September 2018, with the metal rallying more than 14% over the next five months and more than 34% over the following 12 months. This was a great time to be a silver bull, but one had to go against the grain and buy when everyone else was giving up on the metal. However, while sentiment is crucial to finding the path of least resistance in the precious metals markets, the technicals are just as important.