Silver's Weekly Uptrend Intact
07/27/2009 11:01 am EST
One thing is certain about silver: It's the all-time volatility king within the precious metals complex (which includes metals like gold, platinum, and palladium). Owning physical silver (bars, coins, bullion) for the long haul virtually guarantees that you'll get to experience the thrills and agonies of the silver roller coaster. For those interested in a potential shorter-term weekly swing move in silver, we'll examine the chart of the Handy and Harmon base silver price to see if this is a good time to deploy funds into this particular commodity (Figure 1).
FIGURE 1: SILVER, WEEKLY. A rising price channel, positive momentum confirmation, and generally bullish fundamentals all seem to imply that silver may actually have another shot at reaching the top of the price channel. Graphic provided by MetaStock
The weekly chart of silver looks especially bullish on a number of technical fronts. All the usual suspects are present at the table as we see a series of higher highs and higher lows, bullish trend line confirmations, a bullish price channel, and even a very strong momentum indicator—the Rahul Mohindar Oscillator (RMO)—hinting that there is more upside coming for the white metal. In addition, the price has reversed higher on the bullish side of the Keltner channel midline, suggesting that if the converging 20- and 50-week exponential moving averages (EMAs) can be cleared soon, silver might actually attempt another run toward the top of the up-sloping price channel, and if not that high, then perhaps at least to the next Keltner band (depicted by the series of dashed lines) near $15.75.
Looking at some fundamental data, it's interesting to note that the COT (Commitment of Traders) data suggests that the commercial interests are taking a modestly bullish stance at this point, apparently using the latest downdraft to acquire more silver for their industrial and manufacturing needs. Also noteworthy is that option volatility (not shown here) is significantly lower on this recent selloff than on several of the earlier selloffs since last summer. This may offer yet another clue that a bounce higher is a fairly high probability.
Playing this move could involve something as simple as buying 100 shares of SLV and holding it in anticipation of a move up to that next Keltner band, and placing an initial stop near $12.60, the last swing low. Covered call positions aren't a good idea right now, however, due to the aforementioned lack of volatility (meaning that option premiums aren't all that attractive). More aggressive types might even look to acquire shares of silver miners like Hecla (HL), Pan American Silver (PAAS), and Silver Standard Resources (SSRI). Since the broad stock markets are currently in bullish mode right along with the bullish trend in silver, savvy traders are sure to find plenty of ways to extract profits by trading in and out of these silver miners in the weeks to come.
By Donald W. Pendergast Jr. of ChartW59.com