Fibonacci Lesson in Silver ETF (SLV)

10/07/2009 12:01 am EST

Focus: ETFS

Corey Rosenbloom

Founder and President, Afraid to Trade

I was doing some work on the silver ETF (SLV) and wanted to show a simplified version of a potential confluence projection zone at the $18 level, which I found interesting and worth a look.

Click to Enlarge

I noticed that the recent price swings were symmetrical, and I wanted to see what overhead levels of Fibonacci price extension (the extension tool on most platforms) existed. These are drawn with the blue lines.

Most extensions start with a low, are drawn to a swing high, and then are drawn to the next swing low. For example, the first extension starts at the $8.45 low, rises to the $14.42 high in February 2009, and then ends at the April lows near $12.00. The grid is drawn upward, which shows the 61.8%, 100%, and 138.2% Fibonacci projections.

The second grid is drawn using the same logic.

The red lines reflect Fibonacci retracements, the first of which "retraces" from the March 2008 high to the October 2008 low. I eliminated the main retracement lines and am just focusing on the 78.6% retracement at $18.07.

Finally, I'm showing what Robert Miner calls an "external retracement" off the $8.45 lows to the $14.42 highs, revealing the 138.2% "external retracement" at $16.70 and—more importantly—the 161.8% external retracement at $18.10.

What's the point? All four Fibonacci tools reveal confluence at the $18.00 per share level, which is above price currently. This makes it both a potential scalp target to play for, and also a possible low-risk, high-probability short sell trade if this level does hold as confluence resistance (assuming you use other methods and do your own analysis).

If price does support here at the $16.00 per share level, look for a play to $18.00. If price makes it to $18.00, consider taking profits and see how price reacts to these confluence Fibonacci zones. No guarantee that they or any method will be 100% accurate—remember it's always about the probabilities.

If anything, you can file it under "Hmm. That's interesting."

By Corey Rosenbloom of

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