It’s been a volatile start to the year for the precious metals complex, but silver (SLV) has been the shining star right behind platinum (PPLT), with a positive return year-to-date. This continued strength relative to gold (GLD) and the S&P-500 (SPY) has emboldened the thesis that last year’s massive breakout was the start of a new bull market. However, with constant chatter about a silver squeeze the past few weeks, the sentiment is starting to get slightly elevated, with nearly four bulls for every one bear in the trade. Let’s take a closer look below:

(Source: Daily Sentiment Index Data, Author’s Chart)

As shown in the chart above, the long-term sentiment moving average for silver was in the pessimistic territory to the start of December, but its risen sharply since. This is based on the fact that it’s increased from 40% bulls to 79% bulls over just three months, with a reading of 85% typically warning of elevated sentiment in the market. While we have not yet hit a sell signal and sentiment is not exuberant just yet, we are on that path if this increase in sentiment continues. Based on this recent reading, this indicator remains neutral, which suggests a higher risk of starting new positions in silver miners currently.

(Source: TC2000.com)

If we move to the technical picture, we can see that it’s been a volatile few weeks, with silver’s rise above $30.00/oz being short-lived. The good news, though, is that while we saw a sharp correction from the February 1st spike higher, the bulls have continued to defend $26.55/oz, which was prior support. This is a pivotal level for the metal to retain short-term momentum, so as long as we’re above this level, there’s no reason to be bearish.

(Source: TC2000.com)

Looking at a bigger picture chart above, we can see that silver continues to build a cup base on top of its multi-year breakout level, and this suggests higher prices are in store. The key to confirming a breakout from this pattern is a monthly close above $28.90/oz, which would target a move to $33.00/oz at a bare minimum. In terms of longer-term support, as long as silver is above $22.00/oz, silver will remain on a buy signal from a big picture standpoint.

So, what’s the best course of action?

While silver remains bullish, as do the silver miners, the sentiment is getting a little extended short-term, suggesting that the silver miners (SIL) and silver are a Hold currently. This neutral view is corroborated by the fact that the average silver miner is trading at above 25x FY21 earnings estimates, a very lofty valuation unless silver is set to explode higher. Typically, cyclical companies trade below 20x earnings, and this is true even in bull markets.

(Source: Author’s Chart)

Looking ahead to the rest of the month, silver will remain bullish across all time-frames as long as it’s above $26.55/oz. However, with sentiment and valuations elevated, I see gold miners like Newmont (NEM) as much better value than the average silver miner. This is because NEM has similar margins, but pays a 3.90% yield, and is trading at half the earnings multiple of the average silver miner. When it comes to silver, I see the metal as a Hold, and the only attractive silver miner I see currently is Wheaton Precious Metals (WPM).

Disclosure: I am long NEM, GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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SLV shares were trading at $25.74 per share on Tuesday afternoon, down $0.53 (-2.02%). Year-to-date, SLV has gained 4.76%, versus a 2.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Taylor Dart

Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...

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