Above is a daily chart of SLV with GLD plotted in the lower pane, and I want to walk you through what immediately stood out to me. SLV has been on an absolute tear, surging to new highs and showing the kind of momentum that typically grabs traders’ attention. But when I look at GLD beneath it, I see something entirely different, GLD is not confirming the strength we’re seeing in SLV. In fact, it’s moving sideways to slightly lower. This discrepancy is what I refer to as relative weakness or potential distribution in GLD.
Now, before anyone gets excited or jumps to conclusions, this doesn’t mean you rush out and short GLD just because SLV is outperforming it. One of the biggest mistakes traders make is reacting to the first sign of a divergence without letting the market confirm the setup. In my book (Master the Market with Relative Strength), I discuss this in detail: spotting a divergence is only step one, confirmation is everything. Until the market validates the idea with price action, it’s nothing more than a developing possibility.
Looking at the chart right now, we’re not anywhere close to confirmation. For all we know, GLD could easily play catch up in the coming sessions. Divergences can resolve in either direction, and sometimes what looks like distribution is simply a temporary pause before a stronger move. This is exactly why patience is so important in relative strength and relative weakness trading.
I'll be monitoring SLV and GLD closely over the next several days, watching to see whether GLD starts to break down and confirm the weakness or whether it springs to life and follows SLV higher. I just wanted to share what I’m seeing under the surface so you can follow the progression with me.
For more of my daily market breakdowns, you can head over to my homepage: https://therelativestrengthtrader.blogspot.com/
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