Silver Price Analysis - 10 Year Cycle - Part 5

I believe most people who have invested know the simple adage: Buy Low, Sell High.

The question is – what is low, what is high?

I’m a simple man, and I think simple, consistent measures are the best way to go.

For this reason, the 200 day moving average is the simplest measure (but not the only one) to determine if something is high or low.  If it’s higher than the average of the past 200 days, the price is high.  If it’s lower than the average of the past 200 days, the price is low.

For that reason, I personally believe any time the price of silver is below the 200 day moving average, the price is low, and it is an excellent buying opportunity.  Conversely, as I described in my “When to Sell” series, when the price is over the 200 day moving average, it’s high and it’s time to either hold out or to sell.

Again I reiterate the importance of maintaining a core and investment position, if the price goes straight up from here on out, there will never be a buying opportunity.  If that happens – I think there would be bigger problems to worry about, however it is in anticipation of exactly that event that I believe justifies buying silver, even if it is higher than the 200 day moving avereage (but less than the criteria I outline in my "When to sell" series).

The past 10 years clearly shows however, that a runaway price explosion (so far) has not been the case, and I believe this probably will continue.  This may be the last time it does, or it may not – but either way, I believe there is considerable short term profit to be made by following this simple rule: only buy when silver is below the 200 day moving average.  Clearly those opportunities are quite often.

I believe the charts of the cycle of consolidation, rapid increase, and rapid decrease that has occurred 4 times in the past 10 years illustrates my point.

(note: I reiterate, it's not 100% scientific, but I go by the assumption that the 29 week moving average is roughly equivalent to the 200 day moving average.  Netdania doesn't have daily charts further than 2008.)

The blue trend line is the 29 week moving average, the green is the 11 week moving average.  The blue horizontal lines are bottoms below the 29 week moving average.  Clearly these would have been EXCELLENT buying opportunities.

If you were omniscient and knew when the bottom of a correction was, and ONLY bought then, and if you were omniscient and were capable of selling at the very top, you can see from below what kind of returns you would be looking at:



Again, I must caution that noone (especially me) is omniscient (all knowing) - and no one is so good that they can call a bottom (unless they controlled the market - but I won't go there).  This is why I believe anytime the price is below the 200 day moving average is a good time to buy.  Often times, in the past when it's happened, it's happened for less than a week, meaning the opportunity to buy at a low price doesn't last very long.

I will also note, the averge, minimum and maximum are well worth noting, as it may be tempting to go all in when the price drops below that 200 day moving average, however as the 2008 Finacial Crisis showed - the price can fall completely through the floor, and if the P200 ratio goes to 0.57 - I still would want to have some fiat to trade for silver.  Whether or not any physical will be available if that happens, however, is another story.