Silvergate: A crypto stock trade that outperforms (NYSE:SI)

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JuSun

Produced with Avi Gilburt and Ryan Wilday

This article will delve into a high quality technical setup that is developing in Silvergate Capital Corp. (New York stock market :NYSE:IF).

Silvergate Capital provides lending, payment and financing solutions to a growing number of digital businesses monetary space. They also offer financial services such as commercial banking and commercial business loans.

So while Silvergate has risen and fallen in sympathy with the crypto market as it is deeply entrenched in the digital currency services space, its fate is not entirely tied to Bitcoin’s movements.

That said, regarding Bitcoin, although the trajectory predicted in the various “Moonpath” articles published over the past few months has clearly been incorrect, our expectations are still quite optimistic for the next 1-3 years. We are still seeing BTC rise significantly and rewarding investors with longer time horizons.

While not exciting on its own, SI is down around 38% YTD as of this writing, while BTC is down around 58%. Since the 2022 low, which was reached in July, SI is up more than 82% against BTC, which is up about 10% from its June low.

Please see the charts below as a visual aid for technical analysis:

SI daily chart

SI Daily Chart (Jason Appel (Crypto Waves))

First, starting with the daily chart. Our broader perspective is that SI rallied impulsively from the 2020 low. The November high can count as one wave (5), completing 5 full waves as shown in blue. However, inside an impulse, waves (1), (3) and (5) are all expected to be 5-wave moves, and although the rally from the May 2021 to November low exceeded the most Feb high it didn’t make it like a 5 wave clear. As such, we are open to the possibility that the recent low completed one wave (4) of the initial (expected) 5 waves from the 2020 low; or that the recent low is the primary wave 2 of a much higher degree 5 in formation. Given a clear corrective move from the high (whether from February or November 2021) to the July 2022 low, and now an impulsive rally from that low, we expect that noticeably higher levels arrive in both cases: either as wave (5) in black or wave (1) of circle 3 in blue.

SI micrographic

SI Microchart (Jason Appel (Crypto Waves))

Then look at the micro chart (above) showing a detailed display of the wave structure from the July 2022 low. In this case we have a clear 5 wave structure with appropriate proportions of length among the waves and each of the motive subwaves, i, iii and v are all fractal impulses of lesser degree. In our Fibonacci Pinball methodology, after 5 initial waves, in this case wave i, expectations are for a corrective pullback that only retraces part of the initial advance. After the initiation move and the first pullback, i.e. the i-ii, an impulse then follows with a 5-wave move that should ideally exceed the 1.382 extension of the initial wave i. This is our wave iii, and in this case SI has almost reached the 2.0 wave i extension for wave iii.

Following the completion of wave iii, price should retrace a small portion of wave iii’s advance and should ideally hold well above the high of wave i. SI did just that, returning to wave iv support in late July. From there, the completion of the impulse depends on the formation of another micro 5 wave rally, surpassing wave iii high and ideally, doing it just by a few Fibonacci extensions before breaking out. As you can see, SI followed this structure very well for the 5 waves composing wave 1.

The significance of the 5 wave move is that in Elliott Wave we have observed that these impulse moves tend to imply that following a partial correction, price will continue in the direction of the trend.

Finally, let’s take a look at the one-hour chart:

SI chart 1h

SI 1h Chart (Jason Appel (Crypto Waves))

SI has a clear 3-wave move from the August high to this week’s low, directly into the standard retracement support region, indicated by the blue box on the chart. Additionally, the rally from this week’s low has broken above initial resistance, suggesting that a potential bottom has been reached on wave 2. If price were heading south and forming a lower low, please note that standard expectations for a continuation higher dictate that the .618 retracement should ideally hold. It is at the $67.83 level. As such, we consider support to drop down to around $67 in the event that this week’s low is breached. A break of $67, while not an invalidation of the larger pattern shown, would cast greater doubt on the prospect of an upward follow-up.

As long as this week’s low is not broken, a much bigger rise is expected to have started targeting $200+ just for wave 3. The initial wave circle i should target at the minimum August high, but hitting $120+ would be best. Our alternative guess is that price is heading towards $120 to complete a larger 5-wave move from the July low. This path is also quite bullish and portends much higher targets ahead, but it could mean that a bigger and deeper wave 2 pullback is needed before liftoff, as the chart shows.

In summary, we view the SI as a very attractive setup relative to current levels. Initial targets are in the region of $110-$120 and intermediate targets over the next 9-18 months are in the region of $200+

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