History tell us that parabolic runs never have a happy ending. The train always, inevitably goes off the cliff and prices come crashing down. In the case of Silver, the train wreck began this past Monday May 2nd and Silver has dropped over 25% in less than four days. As of 3:05 PM EST SLV, the Silver tracking ETF, is trading at $34.36.
For investors buying late, this drop off has been anything but enjoyable. Losing a significant investment so quickly is only prevented by tight stop losses or a quick and disciplined finger. Many will hold on with the “it’ll come back” mentality and unfortunately for them, they will only find themselves even more deeper in the hole later on.
History does repeat itself, and there have been many examples of such drop offs in the past. To keep things as current as possible, I want to take a comparison of Silver using ETF SLV and Oil from its 2008 collapse using ETF USO. Comparison Notes:
- Silver’s parabolic move started in late August of 2010 which means it took 10 months to reach its peak. Oil on the other hand started its move in July 2007 and peaked in July 2008 giving it 12 months total till peak.
- The initial plunge of USO was not nearly as significant as SLV’s thus far. USO only lost 11.1% in its four trading sessions after peaking whereas SLV has shed over 25% and the fourth day isn’t even over yet.
- USO took just over 7 months to find its bottom and lost 79.6% peak to troth from its July 11th, 2008 peak price of $119.17. SLV is still to be determined but using USO as our guide we could see SLV fall to as low as $9.86 from its peak of $48.35 on April 28th, 2011.
The final bottom for Silver will take months to uncover, but the fact of the matter remains no one knows where the bottom will be. One thing that history tells us for sure though is that it will be significant and go beyond what investor’s initially expect.