Thursday, March 18, 2010

The Technical Take: Silver ETF

It's the best 2 out of 3. It's me against the the i-Shares Silver Trust (symbol: SLV).

In our first crack at this, I felt that SLV was vulnerable. In the article, "As A Corollary To A Higher Dollar....GLD, GDX, SLV", I stated: "it is my expectation that precious metals will be under pressure." In this market, where almost all assets move in one direction, SLV got slammed over the next 2 weeks. Good call!

Then a month later, I wrote: "Did You Sell GLD, GDX, SLV?" Not only was I all poofed up because of my prior "call", but I was making another one as GLD, SLV, and GDX appeared vulnerable. Wrong! Two days later, I wrote "Deflated!" acknowledging my error. To my credit on this one, at least I reversed course quickly.

In any case, let's try this a third time. I will only focus on SLV. Figure 1 is a weekly chart of the SLV. The cluster of negative divergences is identified, and this is formidable resistance. A head and shoulders top is also seen, and the recent price move can be interpreted as the "throwback" into resistance once price breaks below the neck line.

Figure 1. SLV/ weekly

Another reason to be bearish on SLV has to do with sentiment; specifically, the Market Vane Bullish Consensus has become extremely bullish on silver. It isn't an absolute extreme, but an extreme relative to past swing highs. See figure 2, a daily look at SLV with the Market Vane Bullish Consensus data in the lower panel.

Figure 2. SLV/ daily

The descending tops are easily seen. In the lower panel, sentiment is reaching an extreme bullish reading as the indicator is moving outside the upper trading band. While we know that extremes in bullish sentiment can persist for longer than most expect, I don't believe that will be the case here as it will be a significant effort for both price and sentiment to break to new swing highs.

Lastly, I will show a daily chart of the SLV with the on balance volume indicator with a 40 week moving average in the lower panel. See figure 3. The indicator has clearly rolled over, and the recent spike higher in prices has not been accompanied by a significant move in the OBV indicator over the 40 week moving average.

Figure 3. SLV/ daily


Onlooker said...

Dollar looks like it may be ready to perk up a bit too after this long consolidation. That would go well with your SLV call and with a stock market correction (it still does that, right? :-] )

UUP has broken over a trend line on the 5 min chart that goes back to the latest top at the beginning of March. It went up sharply this morning, retested that trend line, and has resumed the upward path.

Something to watch.

Onlooker said...

Here's a chart of the UUP.

UUP chart

Guy M. Lerner said...

I agree about the Dollar, but I have hesitated putting such a story out as everything I look at these days says non-risk over risk assets...

I will summon the courage to put my thoughts to paper/ key board

Onlooker said...

Ha! I hear ya. The bulls have been rampaging, but surely we're due for a bit of change here, no? Not necessarily more than near term, for now, but if the dollar is going to break out here the tone of the markets is likely to be quite different.

Anonymous said...

Upward momentum at all levels
Above 100 day and 45 day
Above pivot pts
Neg. H&S's have not been an indicator in this market

Risk 1.4% Reward 3%
What's the $dollar got to do with it
100 day and 45 day are inverse
Greatest positive-silver is resolving an overbought situation

Silver still has an upward bias, but we see this as a neutral play - just waiting for resolution one way or the other

Guy M. Lerner said...


Depends upon your time frame and expectation for a gain; if you are playing for a 3% gain, I guess you can make that on any day in SLV -it is just a matter of finding the right day.