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Silver Weekly Chart's Uptrend Intact

07/24/09 08:49:13 AM
by Donald W. Pendergast, Jr.

Silver is back on track, offering swing traders a potentially low-risk buy setup.

Security:   SI#F, SLV
Position:   Buy

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.
Graphic provided by: Rahul Mohindar oscillator (RMO) from MetaStock.
The weekly chart of silver looks especially bullish on a number of technical fronts; all the usual suspects are present at the table -- we see a series of higher highs and higher lows, bullish trendline confirmations, a bullish price channel, and even a very strong momentum indicator, the Rahul Mohindar oscillator (RMO), hinting that there is more upside coming in 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 average (EMAs) can be cleared soon, silver might actually attempt another run toward the top of the upsloping 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, placing an initial stop near $12.60, the last swing low. Covered-call positions aren't a good idea right now 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.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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Date: 08/04/09Rank: 4Comment: 

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