Silver and oil keep getting hit

Key points:

• Silver hasn't made a new high in more than two years
• Traders are losing patience, and signs of pessimism are rising
• Crude oil has been getting hit, too, and just triggered a Death Cross

Silver hasn't seen new highs for two years

For silver bulls, the last two years have been anything but sterling.

That metal hasn't set a 252-day high for over two years, among the longest streaks in 50 years.

By the time it reached this long, silver had a modest tendency to keep falling over the next 1-2 months before rebounding.

Investors don't have much patience with a market that can't rally

Traders aren't waiting around. Large speculators in silver futures hold more than 8,200 contracts net short, more than 5% of open interest. The Backtest Engine shows that after other weeks when specs held more than 5% of contracts short, silver rallied more than 70% of the time across all time frames. 

A big caveat is that this was not very robust. If we relax the parameters to lesser extremes, silver's returns diminish significantly.

Bets against the metal pushed the Optimism Index (Optix) over the past 50 days to one of the lowest levels in 20 years. The Backtest Engine shows that the metal tends to rebound over the shorter term when the Optix has gotten this low. Over the next six months, though, it sported a negative average return.

Shorter-term traders who use ETFs are fleeing, too. Over the past 50 days, the SLV fund has suffered an outflow of more than $28 million per day, the 3rd-worst exodus since inception. The other two led to short-term rallies but more losses in the months ahead.

One bugaboo for bulls is seasonality. While this is a tertiary consideration at best in most markets, it tends to be more effective in commodity markets (primarily agricultural contracts). Silver has tended to peak right about now and decline into the fall season. It has not followed its typical seasonal pattern too closely this year, so it's probably worth taking this with a grain of salt.

Oil isn't looking so hot, either

This is (probably) completely unrelated to the moves in silver other than a general risk-off attitude in commodities, but crude oil has also been getting hit hard. 

For the first time in more than two years, oil suffered a "death cross," or a bearish crossover of its 50-day moving average beneath its 200-day moving average. This ended its 2nd-longest streak with a bullish configuration.

After a long time without one, these bearish crosses tended to lead to more losses in the weeks and months ahead.

It's not shown in the table, but the worst returns were over the next 30 days when oil showed a gain only two out of the ten times. 

What the research tells us...

A strong dollar has been a massive headwind for commodities, including metals and the companies that mine them. Fundamental issues and macro concerns have a frustratingly consistent ability to overwhelm any technical or sentiment extremes in these markets, and silver (and crude oil) is no different. Currently, silver is mired in the muck of a bear market that shows no signs of ending. By the time it gets to this long without a high, silver has shown a modest tendency to rebound, and sentiment is depressed enough to support it. Given the calendar and other headwinds, it doesn't seem like a slam-dunk bet. Neither does oil.