Silver's Freefall Could Mean Another 15% Decline From Here

Silver fell more than 30% during its worst stretch last month.

You could replace the word "silver" in that sentence with just about anything, though. Gold, U.S. stocks, and foreign stocks were all getting clobbered.

For many of these assets, we can't know how much longer the beating will last. But for silver, we know that the fall likely isn't over yet.

You see, the metal recently fell for nine consecutive days. We haven't seen a string of bad days like that since 2017... And despite a recent rally, history says this could lead to another 15% fall over the next year.

Let me explain...

In sports, momentum can mark a major turning point in the game. Suddenly, one team strings together several great plays. That turns things around... And it often sparks a surprise victory for the underdog.

The same type of momentum shows up in markets. When things are going well, they tend to keep going well. But when things are going badly... expect more pain.

Today, negative momentum in the silver market is accelerating. We can see it by looking at the metal's recent string of consecutive down days.

You see, when an asset strings together several days in a row in either direction, it means momentum is picking up. And it tells us the current trend is starting to accelerate.

As we mentioned, silver recently fell nine days in a row, triggering a rare extreme. Check it out...

Silver crashed starting in mid-March. The metal was in freefall for more than a week. And it fell nine days without a single up day in between.

The metal has since recovered somewhat. But don't expect this to be the start of a new uptrend.

Nine-day falls in silver are rare... So to see what this decline could mean going forward, we looked at every time silver fell seven days or more in a row.

These extremes point to major underperformance over the next year. We can see this in the table below...

Silver prices have climbed gradually over the past 45 years... returning roughly 2% a year. But the picture gets darker when you buy after a consecutive down-day extreme.

Similar cases have led to losses 71% of the time over the next year. And the typical six-month and one-year returns were -3% and -15%, respectively. Those are ugly returns – and they amount to dramatic underperformance.

Downside momentum has built up in the silver market. History says it could lead to further losses from here.

So while the recent crash is likely setting up a solid long-term opportunity in precious metals... in the short term, there could be more pain on the way for silver.

Good investing,

Chris Igou

Further Reading

"Buying the dip" in silver is a dangerous bet right now. The same is true of stocks today. And if you're waiting for an opportunity to buy back in, investor psychology says the market still hasn't found a bottom yet... Read more here.

"Simple rules of thumb can take much of the human error out of your decision-making," Dr. David Eifrig writes. And these four rules of thumb can help you continue to build your wealth safely... Get the full story here: Make Safer Investments With These Four Rules of Thumb.

Market Notes
A DESIGNER BRAND IS NO PROTECTION IN TODAY'S SELL-OFF

Today, we’re highlighting a hard-hit company in the retail sector…

Because of the COVID-19 pandemic, many retailers have had to temporarily shutter operations to stop the spread of the virus. And those that remain open are dealing with falling sales and declining foot traffic. We’ve highlighted this theme recently with Build-A-Bear Workshop (BBW). Today’s company is also feeling the pain…

Ralph Lauren (RL) is a $4 billion apparel company with a brand known around the world. But even that hasn’t spared it from the economic fallout of the coronavirus. Ralph Lauren had to temporarily close all its stores in North America, as well as many stores in Europe and Asia. It has also withdrawn its earnings guidance and halted any further stock buybacks.

As you can see in today’s chart, Ralph Lauren’s shares have plummeted in recent weeks. The stock is down roughly 40% from its recent high in February. As long as this crisis continues to hit the retail sector, RL should remain under pressure…