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SEASONAL TRADING


Silver Buying Season Is Here

01/11/13 08:32:25 AM
by Matt Blackman

Over the past 20 years, the best time to own silver has been the first eight weeks of the year. Will the trade work out again this year?

Security:   SLV
Position:   Buy

In a recent article entitled "Silver's 'Sweet Spot' For Seasonal Buying has Arrived" (http://goo.gl/U9bKg), trader and technician Don Vialoux highlighted that the time to buy silver was at hand. According to Vialoux, the "sweet spot" for silver has historically been from the end of December to the end of February. This trade has been profitable in 12 of the last 17 years, generating an average return of 12% each year for this two-month period in the last 17 years. In 2012, the trade generated a respectable return of more than double that at around 25%. See Figure 1.

FIGURE 1: SLV, WEEKLY. Weekly chart showing the performance of the iShares Silver Trust exchange traded fund (ETF)(SLV), with the issue now at major support. As the first green arrow on the chart indicates, the trade went like clockwork in 2012.
Graphic provided by: TC2000.com.
 
So why is this period strong for this precious metal? According to Vialoux, "Seasonality in silver is influenced by an increase in industrial demand during its period of seasonal strength. Approximately 40 per cent of silver is used industrially -- in solar batteries, water purification systems, cellphones, circuit boards, plasma televisions and radio frequency identification devices (RFIDs)."

Over the longer haul, buying silver on September 16 and selling on April 11 returned a total of 315% over the last 10 years, with trades ending positively in seven of the 10 years compared to a buy & hold over the same period of 105%. Whoever says that market timing doesn't work hasn't looked at seasonal patterns!

As we see from Figure 2 showing silver seasonality over the last 20 years, there is another spurt of strength for the last two weeks in September as well as from late October to the end of the year.

FIGURE 2: SLV. Here's the seasonal composite chart of the silver continuous contract future showing how the metal has performed over the last 20 years.
Graphic provided by: www.EquityClock.com.
 
Seasonal cycles are not written in stone; they are based on history and as any trader learns, history doesn't repeat itself exactly. But as Mark Twain once famously quipped, "It does rhyme."

As of January 7, 2013, SLV was trading around support at $29 just under the century point of $30, which has proven a major point of historical support and resistance. This makes the current trade relatively straightforward with a stop-loss just under $29. If you get stopped out, wait for another setup and reenter on strength.



Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

Company: TradeSystemGuru.com
Address: Box 2589
Garibaldi Highlands, BC Canada
Phone # for sales: 604-898-9069
Fax: 604-898-9069
Website: www.tradesystemguru.com
E-mail address: indextradermb@gmail.com

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