Silver is testing the top side of its recently broken downtrend line from its 2011 top.

A few weeks ago, the precious metals crowd was buzzing. Gold had broken out to 11-month highs and, perhaps more importantly, the iShares Silver ETP (SLV), had just broken the Down trendline stemming from its 2011 peak (on a log scale). Talk of the long-awaited resumption of the precious metals bull market abounded in financial social media. The past few weeks have taken much of the shine off of that outlook,however.

Precious metals have been heavy metals lately, losing much of their recent gains. But while that is disheartening for gold and silver bugs, the selloff has brought the metals back near the vicinity of their recent breakouts. For the SLV, that means testing the top side of its broken post-2011 Down trendline near 16.30.

So while silver has had a rough couple of weeks, it is only a short-term blip — and the metal is testing an area that may serve as a good excuse for the metal to bounce. Obviously, if SLV fails to hold the trendline, it would be significantly bad news for precious metals bulls. Even if it does hold the trendline, however, it doesn’t mean that SLV is necessarily off to the races.

Back in July, we mentioned 3 reasons why silver may be in store for a rally. The primary reason was because SLV was testing its Up trendline stemming from the major low in 2009. Secondly, seasonality on the metal was bottoming out, on an annual, historical basis. Lastly, the so-called “smart money” Commercial Hedgers in silver futures were showing their smallest net short position since near the market bottom in January 2016. That was a significant potential tailwind for silver. And indeed, the metal jumped almost 20% from that post to the recent peak.

It is a different story now. While the Hedgers’ net short position is not at record levels like it was at the silver peak in April, it has grown substantially since the July post. So while it can potentially expand further, the position certainly does not represent the possible tail wind that it did just a few months ago.

So the trendline may offer a silver lining to SLV’s recent decline — but it may only be temporary.

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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.