From Timothy Smith:
Silver prices have fallen in tandem with the price of the precious metal’s more glamorous cousin gold over the past week to hit a nine-week low on Monday, March 5. COMEX silver futures for May (QI=F) traded at $15.06 on the close yesterday, down over 7% from their 2019 year-to-date (YTD) high of $16.21 set on Jan. 30.
After withstanding a return of risk appetite and the subsequent rebound in global equity markets over most of January and February, precious metal prices finally conceded some ground late last month and early this month. Although it’s true that the bears have control over silver’s short-term price action, that could quickly change if the U.S. jobs report, scheduled for release Friday, disappoints or if a Brexit deal can’t be hashed out ahead of the March 29 “leave” date.
The gray metal’s recent decline puts the price of these three silver exchange-traded funds (ETFs) into a support zone that offers an enticing trading opportunity ahead of an upcoming month of uncertainty in the financial markets. Let’s look at each fund more closely.
iShares Silver Trust (SLV)
Launched in 2006, the passively managed iShares Silver Trust (SLV) aims to track the price of silver. The fund provides direct exposure to the precious metal through its holding of silver bullion stored in a London vault. Traders seeking a vanilla silver fund should look no further than SLV. It has a large asset base of nearly $5 billion, tight spreads and deep liquidity. The fund’s management fee of 0.50% is slightly higher than the 0.34% category average. As of March 6, SLV is down 2.55% on the year.
The 50-day simple moving average (SMA) crossed above the 200-day SMA, referred to as a golden cross, in mid-February, indicating a change in trend direction to the upside. Since then, the price has retraced back toward a crucial support area around $14. Traders who go long here should place a stop-loss order just below trendline support and look to book profits near the January and February swing highs at the $15.25 level – offering an excellent risk/reward ratio of about 1:4. ($0.25 stop/$1.05 profit target = 1:4.2).
ProShares Ultra Silver ETF (AGQ)
The ProShares Ultra Silver ETF (AGQ) attempts to provide two times the daily performance of the Bloomberg Silver Subindex. It does this by investing in financial instruments such as swap agreements, futures contracts and forward contracts. A tight 0.07% spread and average share volume of over 150,000 make this fund a trader’s favorite. The ETF’s expense ratio of 0.95% is pricey but shouldn’t overly affect short-term holds. AGQ has assets under management(AUM) of $211.34 million and is down almost 7% YTD as of March 6, 2019.
After breaking out from a double bottom pattern in late December’s “risk off” market environment, AGQ’s share price has traded sideways for most of 2019 to date. The recent pullback into key support between $24 and $25 provides an attractive entry point for swing traders. A nearly oversold relative strength index(RSI) reading gives further conviction of an upside reversal in the coming trading sessions. Consider setting a take-profit order in the vicinity of last month’s high at $28.59, where the price may run into overhead resistance. Protect trading capital by positioning a stop slightly below the double bottom pattern’s neckline.
VelocityShares 3x Long Silver ETN (USLV)
Formed in 2011, the VelocityShares 3x Long Silver ETN (USLV) seeks to provide investment results that correspond to three times the daily return of the S&P GSCI Silver index ER. The fund’s leverage makes it suited to traders who want an aggressive short-term bet on rising silver prices. Traders should be aware that the ETF resets each day, which may cause longer-term returns to deviate from its advertised leverage due to the effect of compounding. More than 180,000 shares change hands per day, which provides ample liquidity to enter and exit positions when required. As of March 6, 2019, USLV has net assets of $271.31 million and sports a YTD loss of 10.73%.
Like the other silver ETFs analyzed, USLV has recently retraced back into a buy zone created from last year’s price action and gained the attention of bulls with a golden cross signal on its chart. Traders who buy “in the zone” between $65 and $70 should look for a move back to the $84 level, where the price may encounter resistance from a horizontal line that connects several swing points. Cut losing trades if the fund closes below the zone’s lower trendline, as this invalidates the setup.
The ProShares Ultra Silver (AGQ) was trading at $24.26 per share on Thursday afternoon, down $0.25 (-1.02%). Year-to-date, AGQ has declined -28.33%, versus a 3.17% rise in the benchmark S&P 500 index during the same period.
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