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Is Now a Good Time to Buy Silver?

It's been an impressive start to Q1 for silver (SLV) as the metal has launched out of a multi-year base to new highs, catapulting over an area that's been tough resistance in the past.

This multi-year breakout is an extremely bullish development long-term as it has improved silver's relative strength across all other assets, and it's also increased the probability that a move to $32.00/oz is on the table long-term. However, while the long-term picture has made significant strides over the past month, the short-term picture remains very over-heated.

This is because we have seen bullish sentiment hovering above 90% in silver for two weeks in a row, and we've got one of the most overbought conditions in silver in several years. This suggests while holding for higher prices is not a bad bet for long-term investors, adding exposure here above $24.50/oz is likely a bad idea. Let's take a closer look below:

A picture containing water, computer Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

As we can see from the chart above of bullish sentiment, we remain in nose-bleed territory for silver as the long-term moving average is currently sitting well above 80% bulls. This has only happened on four occasions in the past decade, and every occasion was met by a 15% or larger correction within the next three months.

This does not imply that we must correct sharply to below $22.25/oz before the end of September from the recent highs at $26.00, but it does mean that the reward to risk is no longer favorable for entering new positions.

Typically, when we have this much bullish sentiment in a trade, it tells us that all the bulls are already in the trade, and it's difficult for an asset to go higher when the majority have already taken their positions. In fact, when everyone is locked into a trade, the market often goes lower as it almost always delivers the most pain to the most people possible.

A picture containing screenshot, computer Description automatically generated

(Source: TC2000.com)

If we look at the daily chart above, this view that things are a little frothy is corroborated by the most overbought condition we've seen in almost a decade for silver. As is shown above, we have not only printed multiple red caution bars, but we've also printed orange bars which are short-term sell signals.

Similar to the above sentiment readings, there is no guarantee that these signals will be correct, but they certainly do not bode well for short-term upside. In the past four instances following these signals, we have corrected at minimum 13% over the following three months, suggesting a trade down to $22.60/oz is in the cards before the end of September.

So, is there any good news for the bulls?

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

Fortunately for the bulls, the massive breakout trumps both of these indicators, and it suggests that while a pullback is possible, it will likely provide a buying opportunity. Generally, multi-year breakouts will find support at their breakout point if we do see weakness, and I would expect the $21.00/oz level to be a brick wall of support on any pullbacks.

Therefore, while I am long-term bullish on silver following this breakout, I believe the best time to enter the trade will be on a correction to shake out many of the weak hands, not here, while retail traders are climbing over themselves to buy every silver miner they can find.

Based on this view, I believe any 15% pullbacks in silver towards the $21.75/oz level will be buying opportunities for leading silver miners and silver, but I would not be in a rush to chase the trade here. For now, I continue to hold a few of what I believe to the best silver miners, but I've taken some profits off the table the past week to re-balance my positions.

Disclosure: I am long SILV, PAAS, GLGDF

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 How HIGH Can This Tech Bubble Fly? 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) was trading at $22.71 per share on Tuesday morning, down $0.03 (-0.13%). Year-to-date, SLV has gained 36.15%, versus a 3.00% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV August 4, 2020 9:54am

Massive Reversal in Natural Gas After Hitting Historic Lows

  • The price action was bearish in July
  • High stock levels and weaker demand were a bearish cocktail for the energy commodity, but natural gas was too low
  • Back above $2, but the bears are likely to return
Seasonality is a critical factor in the natural gas futures market. The price tends to reach highs as the winter months approach, and lows in the early spring after the peak season of demand. The most recent high in the NYMEX natural gas market came in November 2019 when the energy commodity reached a high of $2.905 per MMBtu. In November 2018, the low level of stockpiles going into the peak season for heating demand took the price to nearly a four year high at $4.929. The lows typically come in February and March at the end of the withdrawal season as stocks begin to build for the next peak season. By the summer months, natural gas prices are already looking forward to the coming winter. Meanwhile, 2020 has been anything but a typical year in any market. Natural gas fell to a new twenty-five-year low in June at $1.432 per MMBtu. In July, the price remained under pressure and was at its lowest level of this century. The US Natural Gas Fund (UNG) tracks the price of the energy commodity futures higher and lower. The BOIL and KOLD products provide double leverage on the up and downside in the natural gas market. The price action was bearish in July At the end of last week, the now active month September natural gas futures contract had bounced from a higher low at $1.646 on 20. In late June, September futures hit bottom at $1.583. Meanwhile, the continuous contract reached $1.432. The premium for the September contract is a function of both seasonality and the high level of stockpiles, which were at 3.241 trillion cubic feet as of July 24.

Source: CQG

As the daily chart highlights, natural gas has made higher lows and higher highs since late June. Meanwhile, a move above the July 7 peak at $1.989 was necessary to break the medium-term bearish trend. On the first trading session in August, September futures blew through that level like a hot knife goes through butter, trading to a high of $2.154 and settling at over $2.10 per MMBtu. Price momentum and relative strength indicators were moving towards overbought conditions. Daily historical volatility at the 99.6% level spiked higher on the dramatic move on August 3. The open interest metric has been flatlining on either side of the 1.3 million contract level. Even though the price action since late June has been constructive, the natural gas futures market remains in a bearish trading pattern since early May. A move above $2.162 is necessary to negate the bearish trend. The September futures stopped short of that level on August 3. In June and July, the nearby futures contracts dropped to lows of $1.423 and $1.605 per MMBtu. High stock levels and weaker demand were a bearish cocktail for the energy commodity, but natural gas was too low Both crude oil and natural gas have suffered under the evaporating weight of demand caused by the global coronavirus pandemic. Crude oil fell to an all-time low in April. Natural gas declined to its lowest price since 1995 in June.

Source: CQG

The monthly chart shows that the lows in June and July were the lowest natural gas prices during those months of this century. The last time the energy commodity fell to a lower level in June was in 1991, and in July since 1995. Stockpiles and demand destruction caused the price of natural gas to fall to the lowest level in decades over the past two months. However, at below $2, the price fell to a level that was too low as the peak season for demand starts in approximately four months. Back above $2, but the bears are likely to return The bearish tone in the natural gas market is likely to remain intact over the coming weeks and months, despite the August 3 rally. Stockpiles seemed destined to rise to over the four trillion cubic feet level for only the third time since the Energy Information Administration began reporting data. The first level of technical resistance stands at $2.162 on the continuous contract and $2.499 per MMBtu on September futures. With the winter season of 2020/2021 on the horizon, natural gas tends to move higher as the withdrawal season that begins in November approaches. However, any rally is likely to attract speculative selling because of the high level of inventories and the market's overall bearish tone.  Over the coming months and into 2021, technical support stands at the recent $1.432 low. Below there, $1.335 and $1.25 per MMBtu are support levels from 1995. In 2020, crude oil fell to a new all-time low. In the natural gas futures arena, the $1.02 level, the bottom from 1992, stands as the line in the sand on the downside as it is the all-time low since natural gas began trading on the NYMEX futures exchange in 1990. The move on August 3 is a reminder for the bears that the risk of a short position increases the lower it falls. Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 How HIGH Can This Tech Bubble Fly? 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The United States Natural Gas Fund L.P. (UNG) fell $0.06 (-0.50%) in premarket trading Tuesday. Year-to-date, UNG has declined -29.00%, versus a 2.90% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #72 of 111 ETFs in the Commodity ETFs category.  

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:UNG August 4, 2020 9:41am

Crude Oil Is A Tightly Coiled Spring

NYSE:USO August 3, 2020 1:37pm

Will Natural Gas Hit $2 This Summer?

NYSE:UNG July 30, 2020 3:11pm

Natural Gas: August-January Spread Tells a Story

 
  • Natural gas consolidates moved higher after another small injection
  • January spread reflects plenty of supplies
  • Contango in natural gas is a function of seasonality
  The term structure in a commodities market can tell us a lot about supply and demand fundamentals and seasonality. In the natural gas market, the price tends to reach its peak as the winter season approaches. During the winter months, inventories decline as the demand for heating increases. The withdrawal season tends to run from November through March each year. From March through October, stockpiles build in anticipation of the demand season. At the end of July 2020, stockpiles are significantly above the level seen at the same time in 2019 and over the past five years. It seems likely that the total amount of natural gas in storage across the United States will rise above the four trillion cubic feet level by the time November rolls around. It will only be the third time that stockpiles rose to that level. The spread that reflects the prices for delivery in August 2020 versus January 2021 is in contango. The delivery date is trading at a far higher price than for nearby delivery. The spread reflects both seasonality and the high level of stocks. The United States Natural Gas Fund (UNG) follows the price of natural gas higher and lower. Natural gas moves higher after another small injection

Last Thursday, the Energy Information Administration reported the fourth consecutive decline in injections into storage across the United States. The build of 37 billion cubic feet was a sign of falling production, and the natural gas futures market moved higher in the aftermath of the report.

Source: CQG

As the chart highlights, the August futures rallied to over $1.80 per MMBtu in the aftermath of the weekly inventory data. Technical support is now at $1.605 and $1.517, with resistance at $1.924 per MMBtu. Price momentum turned higher but was over a neutral reading at the end of last week. Relative strength moved above neutral territory. Open interest, the total number of open long and short positions in the futures market has been steady at 1.302 million contracts. The metric has been on either side of 1.3 million contracts since early June. Daily historical volatility at just over 49% fell from over 82% on July 9 as the daily trading ranges narrowed. The August-January spread reflects plenty of supplies

We are about to move into August, which puts the natural gas market one step closer to the 2020/2021 winter season. Natural gas tends to peak each year in January as the demand for heating reaches a high during the heart of winter.

Source: CQG

The chart of natural gas futures for delivery in January 2021 minus August 2020 shows that the January futures were trading at a premium of $1.099 per MMBtu at the end of last week. The premium of 60.8% reflects the high level of stockpiles that could reach four trillion cubic feet in November. At that level, there will be plenty of natural gas available to meet all requirements during the upcoming winter season.  Contango in natural gas is a function of seasonality The contango, or premium for forward delivery in January 2021 versus August 2020, is because of seasonal factors. While nearby natural gas was trading around the $1.80 per MMBtu level at the end of last week, The January futures at nearly $2.90 per MMBtu make it expensive to positions on the long side for the upcoming winter season. With stockpiles at such a high level in July, I would not be a buyer of the January contract. However, on price dips, I continue to favor the nearby August or September futures from a risk-reward perspective. I would look for a 1:2 risk versus reward ratio on any long position. I believe that the nearby price will eventually move back to the $2 level or a bit higher, but the level of stocks will prevent natural gas from running away on the upside over the coming weeks and months. Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 Newly REVISED 2020 Stock Market Outlook 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The United States Natural Gas Fund L.P. (UNG) was trading at $10.56 per share on Tuesday morning, up $0.40 (+3.94%). Year-to-date, UNG has declined -37.37%, versus a 1.28% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #73 of 111 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:UNG July 28, 2020 10:07am

Silver Bulls Overstaying Their Welcome

It's been an incredible start to Q3 for silver (SLV) as the metal is up over 30% in barely 20 trading days, and this significant move in the metal has brought with it the most optimism we've seen in years.

While it was hard to find a $20.00/oz price target for silver during the metal's doldrums in March, we've now got $30/oz and $40/oz silver targets being slapped on the metal, with many analysts looking for these price objectives to be achieved by year-end. This should be worrisome to the bulls, as the metal rarely fares well when everyone is suddenly bullish.

Unfortunately for the bulls, this extreme optimism is coupled with the most overbought reading we've seen in nearly a decade, with silver moving up in a parabolic fashion, with the 6-month rate of change now over 30%. Based on the complacency we're seeing which is evidenced by panic buying, as well as an extreme overbought condition, investors would be wise to be cautious here.

A picture containing text Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

As we can see in the chart above of sentiment for silver, we've been on a reading of 85% to 94% bulls for nearly two weeks now, which suggests that there is a minimum of 9 bulls for every one bear in the market currently.

This has typically been a warning sign as the red shaded area shows and this is because when everyone is bullish, there's not many left to buy to support the rally.

The last time this occurred was August of 2019 and the metal-topped shortly thereafter before falling nearly 20% in less than three months. While we don't need to see a repeat of August 2019, we are certainly in nosebleed territory here which has typically been a good place to book at least some profits.

The one silver lining is that positioning among small speculators has not caught up to prior peaks before, and this is despite a much higher silver price ($24.00/oz vs. $19.00/oz).

While this remains a positive divergence, we are now outside of the moderate pessimism zone below 30,000 contracts. Also, this is typically a lagging indicator as it's only reported once a week, and therefore, it's not reflecting today's prices, but instead last Thursday's prices.

Therefore, while this divergence suggests we likely haven't put in a long-term top, there's no way to rule out a short-term top based on this indicator's reading.

A picture containing computer Description automatically generated

(Source: CFTC Data, Author's Chart)

Finally, if we take a look at the technicals below, they are corroborating the complacency we're seeing in sentiment, as we now have one of the most overbought readings in silver we've seen in years.

This current overbought reading has now exceeded the overbought readings of July 2016 and August of 2019, and both of these marked major peaks. The difference this time around is that we have a multi-year breakout as a tailwind, and this is one reason why this won't likely be a long-term top.

However, multi-year breakout or not, nothing goes up in a straight line. Therefore, some volatility here would not be surprising, nor would a sharp correction to shake out some weak hands and relieve overbought conditions.

A screenshot of a cell phone Description automatically generated

(Source: TC2000.com)

So, what's the best course of action?

While I generally don't like to fade breakouts, I have significantly reduced my holdings in a few silver miners yesterday as both the Silver Miners Index (SIL) and silver are hitting very extreme readings, and the odds have increased that we can see a 10-15% correction in silver from $24.50/oz. While this might not be a big deal to stomach for most investors in the metal, it could translate to a 20% drop in many silver miners that have also become very extended recently.

For this reason, I believe investors would be wise to take some profits if they are significantly overweight and look to redeploy that money once sentiment cools off a little.

Of course, there is no guarantee that correction occurs, but I would rather trade in probabilities than worry about rare anomalies. Generally, the time to buy is when no one is interested in the miners and silver, and the time to sell is when everyone is fighting to get in and bidding up the most speculative names. We've finally reached that juncture here, and this is why I've rung the register on some of my holdings.

Disclosure: I am long GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 Newly REVISED 2020 Stock Market Outlook 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) was trading at $22.20 per share on Tuesday morning, down $0.63 (-2.76%). Year-to-date, SLV has gained 33.09%, versus a 1.31% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
ETF BASIC NEWS July 28, 2020 9:55am

3 Reasons Crude Oil Will Continue to Move Higher

NYSE:USO July 27, 2020 9:40am

Why is Natural Gas Up 3.5% Today?

NYSE:UNG July 23, 2020 11:51am

Silver Miners: Time to Take Profits

We've seen a surge in demand for silver miners over the past few weeks and the Silver Miners ETF (SIL) continues to climb the ranks, now the 7th best-performing ETF year-to-date. The rush into the sector has come as a result of silver (SLV) overtaking gold (GLD) as the best performing precious metal in 2020, and speculators are anxious to get their hands on miners that provide leverage to the metal.

However, while the recent advance has been a positive sign with many miners hitting new 52-week highs, the past two days we've seen panic buying in many silver miners as well as the metal, and this suggests that the trade is now beginning to get crowded. Based on this, I believe investors would be wise to take some profits in both silver and the silver miners, as the reward to risk is now the worst it's been in nearly a year.

A picture containing clock, meter Description automatically generated

(Source: TC2000.com)

As we can see in the above chart of the Silver Miners ETF, the index is trying to make a new multi-year high, and briefly traded above strong resistance at $45.00 this week. However, we will need a monthly close in July above $45.00 to confirm this breakout, and it's looking like this might be a difficult task for the bulls.

This is because the index has raced higher by more than 195% in less than 100 trading days, barely taking a rest along the way. In most cases, rallies of this size rarely hold onto their gains short-term, even if this is a positive change of character for the index. Therefore, while a breakout above $45.00 for July is possible, I remain skeptical that the bulls will be able to hold onto all of these gains.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

If we take a look at a short-term chart below of the Silver Miners ETF, we can see that the index continues to have positive momentum, but the red bars shown above suggest that this momentum has gone a little too far. This is because the index is currently more than 25% above its 20-day moving average, a significant extension short-term that generally leads to correction over the following week.

This is further evidence that we've seen panic buying among the miners, and it's never a good idea to be a buyer when the crowd is also rushing to get into a trade. It's typically a good idea to do the opposite and begin taking some profits. While there's no guarantee that we need to pull back, I would not be surprised to see a 7-10% pullback in the Silver Miners ETF from the $47.00 level we hit yesterday.

A picture containing screenshot, fireworks, computer Description automatically generated

(Source: TC2000.com)

Finally, if we take a look at the daily chart of silver, we've also got a big issue, and that's the fact that silver is now more overbought than it's been in nearly a decade. The current overbought condition (orange bar) exceeds that of the one we saw in August 2019 and August 2016, and both of these signals led to short-term and medium-term tops.

There's no reason to believe that this time has to be the same, though I would argue that there's a high probability that we will pull back over the coming week or two after hitting parabolic levels as of Wednesday's close. This corroborates the view that the Silver Miners ETF could be in for some volatility, yet another reason to think about booking some profits in silver miners.

While everyone is plowing into the silver miners trade and discussing $35/oz silver before year-end, we now have the most complacency we've seen in nearly a decade, as well as the most overbought condition in nearly a decade, and this rarely ends well for those chasing the metal.

Therefore, while the Silver Miners ETF has made significant progress and could register a multi-year breakout before year-end, I do not think this is the time to be adding new exposure to silver miners. Instead, I think it's time to go against the herd and start selling.

For now, I continue to remain long several silver miners like Pan American Silver (PAAS) and Silvercrest Metals (SILV), but I have taken quite a bit of profit this week in anticipation of a pullback. The time to be greedy is when others are fearful, and when the Robinhood traders are plowing into SLV at break-neck speed, it's time to be fearful and that this upside move might be about to run out of momentum.

Disclosure: I am long GLD, SILV, PAAS

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 Newly REVISED 2020 Stock Market Outlook 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The Global X Silver Miners ETF (SIL) was trading at $46.32 per share on Thursday morning, down $0.43 (-0.92%). Year-to-date, SIL has gained 40.15%, versus a 2.48% rise in the benchmark S&P 500 index during the same period. SIL currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #10 of 34 ETFs in the Precious Metals ETFs category.
NYSE:SIL July 23, 2020 11:30am

Natural Gas Liquidity Could Suffer After End Of Triple Leveraged Products

  • UGAZ and DGAZ were highly liquid alternatives to the NYMEX futures

  • A delisting by Credit Suisse of its VelocityShares ETNs

  • Futures, futures options and BOIL will pick up the slack but expect a decline in some speculative activity

ETF and ETN products tend to add liquidity to the futures markets. The derivatives allow for speculation in commodities futures markets without venturing into the futures arena. They have increased the addressable market as they are available to market participants with a standard equity trading account.

The first ETF/ETN product in the commodities asset class was the GLD that replicates the price action in gold. Since then, a host of other unleveraged and leveraged products burst upon the scene in many different raw material markets. The rise of the derivatives has added to the volume, and open interest as market makers, arbs,  and other market participants hedge the price risk in the futures market.

Natural gas is one of the most volatile commodities that trade in the futures markets. The UGAZ and DGAZ products that offered triple leverage on the up and downside in the natural gas arena traded millions of shares each day. The United States Natural Gas Fund (UNG) is the unleveraged natural gas product that follows the price of the energy commodity higher and lower.

UGAZ and DGAZ were highly liquid alternatives to the NYMEX futures

UGAZ and DGAZ became standard products for market participants looking to take risks in the natural gas arena without venturing into the futures market on NYMEX. The short-term triple leveraged products traded millions of shares and added significant liquidity to the futures arena as the hedging of the risk positions found their way into the active month futures contracts.

The Velocity Shares 3X long and short ETN products were highly successful over the past years as an alternative for those with access to a standard equity account. Credit Suisse was the issuer of the ETN products. ETNs have an added risk of the credit of the issuer.

A delisting by Credit Suisse of its Velocity Shares ETNs

On June 22, Credit Suisse AG announced its intention to delist and suspend further issuances of a host of leveraged ETN products, including UGAZ and DGAZ. The financial institution did not provide specific reasons for the decision, but it was likely the result of events in the crude oil futures market on April 20. When the nearby NYMEX crude oil futures contract fell below zero, and a low of negative $40.32 per barrel, it sent a chilling signal to the derivatives markets. The potential for a similar move in natural gas or other commodities was likely behind the decision.

Natural gas has a long history of volatile price action as it has traded from a low of $1.02 to a high of $15.65 per MMBtu since 1990. The potential for a move below zero in the natural gas futures market at its delivery point at the Henry Hub in Erath, Louisiana, likely drove the decision to delist the bullish and bearish leveraged ETNs late last month.

Futures, futures options and BOIL will pick up the slack but expect a decline in some speculative activity

Natural gas will continue to attract speculators looking to participate in bullish and bearish price trends in the energy commodity. When it comes to leverage, the only choices are the futures arena or the ProShares Ultra Bloomberg Natural Gas product (BOIL) and its bearish counterpart (KOLD). The fund summary and top holdings of BOIL include:

Source: Yahoo Finance

BOIL offers double leverage on the upside, and KOLD is the inverse product. BOIL and KOLD have net assets of $50.6 and $25.19 million, respectively. BOIL trades an average of 1,022,814 shares each day, while KOLD's average is 132,409 shares. BOIL charges a 1.31% expense ratio, and KOLD's is 1.54%.

The BOIL and KOLD products have experienced an increase in volumes now that UGAZ and DGAZ are no longer available. However, the volume on the natural gas futures exchange is likely to suffer as the millions of shares of the triple leveraged Velocity Shares products will no longer translate into buying and selling in the futures market.

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The United States Natural Gas Fund L.P. (UNG) was trading at $9.72 per share on Tuesday morning, up $0.11 (+1.14%). Year-to-date, UNG has declined -42.35%, versus a 2.49% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #72 of 111 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...  
NYSE:UNG July 21, 2020 11:22am

Is It Time to Take Profits on Silver?

It's been an incredible past few weeks for silver (SLV) with the metal finally playing catch-up after a horrid relative underperformance vs. gold (GLD). The metal is now up 15% for the month and 18% year-to-date, after briefly staring down a significant double-digit loss during the mid-March turbulence.

While this performance is a huge change of character and suggests that higher prices are likely long-term, we are seeing a problem short-term: extreme optimism surrounding the metal.

Over the past couple of weeks, we've seen multiple calls for $35/oz silver before year-end, and it's always worrisome when market participants are talking about 50% higher prices after we've already witnessed a sharp rally. Therefore, I believe investors would be wise not to chase silver here above $21.00/oz.

A screen shot of a computer Description automatically generated

(Source: TC2000.com)

As we can see in the chart above, it's been an impressive two months for silver as it continues to outperform the yellow metal, more than offsetting the significant underperformance since the start of 2020.

While we have not yet confirmed a bullish turn in this indicator, which will require a move above 0.125, this is a definite step in the right direction as we now have an uptrend in place. Generally, silver leading gold is an excellent sign for both metals, but especially for silver, and this suggests that higher prices are likely long-term for both metals.

Unfortunately, the worst thing for a bull market is extreme optimism, and we can now see the first signs of that in silver. This doesn't mean that this bull market is in jeopardy; it merely suggests that it's getting over-heated and could use a pause. Let's take a look below:

(Source: Daily Sentiment Index Data, Author's Chart)

If we look at the chart above, we can see that the best time to buy silver is when it's trading below the 50% level and close to the green zone. Conversely, the best time to take profits is when silver heads into the red zone, an area of extreme complacency.

The last time the metal went into this zone was in late August 2019, and the metal saw a 15% correction in less than three months, the last thing that market participants were expecting at the time. However, this is precisely why that correction occurred, everyone was looking up, and the market tends to make a fool out of the most people possible.

Given that everyone is now looking up again, and looking for $30/oz silver, a pullback here would not be surprising. Let's see if the technicals are confirming this:

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

As we can see from the technical picture, we now have new support near the breakout at $18.00/oz, but we're now within a hair of strong resistance at $21.25/oz for silver.

Therefore, for investors that were buying the dip in silver below $17.00/oz, this is a good area to book some profits, especially in silver miners that have seen a strong run.

While we may break above this $21.25/oz resistance level, I believe it's less likely given that we now have a very crowded trade on the long side.

The recent rally in silver has finally converted many non-believers into bulls, and this does not bode well for silver short-term. We now have 8.5 bulls for every 1.5 bears in silver based on an 85% optimism reading, and this is rarely a good sign for the metal.

Based on this, I am taking some profits in my silver miner positions, and I would caution against adding new exposure here. It is certainly possible that silver can move a little higher as retail begins to pile into this trade finally, but I prefer to be buying when retail is spooked, not finally plowing into a trade they've been ignoring for weeks.

As long as the bears can defend $21.25/oz on a weekly close, they will be able to keep a lid on this silver bull market for the time being.

Disclosure: I am long GLD, PAAS, SILV

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 Newly REVISED 2020 Stock Market Outlook 7 "Safe-Haven" Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) was trading at $19.56 per share on Tuesday morning, up $1.03 (+5.56%). Year-to-date, SLV has gained 17.27%, versus a 2.29% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV July 21, 2020 11:04am

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NYSE:UNG July 16, 2020 2:29pm

Silver Trade Getting Crowded, Time for Caution

It's been a strong start to Q3 for silver (SLV) with the metal up 7% in just ten trading days, outperforming every other asset class.

This significant outperformance has contributed to the metal's relative strength in Q2 vs. the gold price (GLD), further emboldening the view that it might finally be silver's turn to play catch-up and break out of a multi-year base.

However, we've seen a plethora of articles the past week on $30/oz silver, the explosive move that's coming, and some analysts even slapping $35/oz price targets on silver before year-end. When this occurs, it's often time to be cautious and, at a bare minimum, not be in a rush to add to new positions.

This is because most of the metals bugs wander out of the woodwork to call for grandiose price targets at the worst possible times, typically at the same time that things are getting a little frothy. Let's take a closer look below:

A picture containing computer Description automatically generated

(Source: Author's Chart, CFTC Data)

As I've shared for several weeks, we continue to see a positive divergence in the price of silver vs. small speculator positioning with silver closing at its highest levels in two years, but speculative exposure remains quite low. This positive divergence remained in place last week, and this has emboldened the argument that sharp pullbacks in silver will be buying opportunities.

This is because there are still tons of market participants left to convert to bulls, the complete opposite of last August when we had speculators crawling over each other to get into the silver trade, with sentiment being a massive headwind.

Therefore, from this indicator alone, there's no reason to be overly cautious, even if small speculator exposure is trending up marginally.

A picture containing water, table Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

However, my second gauge for judging sentiment moved onto a caution signal yesterday, with the long-term moving average for silver pushing above the 80% bulls level.

This suggests that there are eight bulls for every two bears over the past six weeks, which is generally not a great sign for the metal short-term. As we can see, the last time this occurred was in August 2019, and it marked the top for silver within one week. Just because the metal fell apart the last time this indicator hit this reading does not mean we have to see a medium-term top this time around, nor that we have to correct 20% like we did last time.

However, it does suggest that any further rallies from here are likely to run into selling pressure, and I would expect the $20.00/oz to $20.30/oz area to be a brick wall short-term if this rally does continue.

So, what's the best course of action here?

A screenshot of a video game Description automatically generated

(Source: TC2000.com)

As we can see from the technical picture, silver is currently trading above long-term resistance at $18.95/oz, but this resistance must be broken on a weekly close to be invalidated.

While a breakout would be a bullish development, the excessive optimism suggests that the breakout might not be as explosive as some are expecting, as too much optimism tends to put a lid on prices.

This does not mean that silver can't rise another 5% to 7% in the next month, but it does mean that any move above $20.25/oz will likely be a profit-taking opportunity. This is because it's rare that silver holds onto its gains when the trade is already crowded.

Therefore, I see the best course of action here as taking as being patient to add any new exposure, and taking some profits if we do head closer to $20.00/oz. For now, I have no positions in silver, but I remain long Pan American Silver (PAAS), GoGold Resources (GLGDF), and Silvercrest Metals (SILV), my three favorite plays on the silver price.

Disclosure: I am long GLD, GLGDF, PAAS, SILV

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 Top 5 WINNING Stock Chart Patterns 7 "Safe-Haven" Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) fell $0.25 (-1.38%) in premarket trading Thursday. Year-to-date, SLV has gained 7.37%, versus a 0.33% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV July 16, 2020 9:28am

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