ETF In Focus: A Technical Update On Silver (SLV, AGQ, ZSL, PSLV, SIVR, DBS, USV, SIL)

Scott Pluschau:  Silver has been a hot topic lately so let’s take an in depth look at a weekly chart of the iShares silver trust (NYSE:SLV). Using Auction Market principles, silver was in a phase of horizontal development for many months back in year 2010, where I have drawn a rectangle, and marked with the letter “A” on the Weekly chart of SLV. A balance area that forms for many periods is typically a launching pad for vertical development. The initiative move outside one extreme of a mature balance area should not retrace much. Looking back, this was a low risk entry I marked with the letter “B” on the chart. With no prior over head resistance, the probabilities were favorable for the breakout there to be strong. Over time taking these types of trades, along with the proper money management/position sizing and exit strategy will lead to a trading system with positive expectancy.

Let’s move to the letter “C” I labeled on the chart where I have drawn a rectangle. Using Japanese Candlestick analysis this marks a one period potential bearish reversal pattern. In Japanese Candlestick Analysis this single candle is known as a “Long Legged Doji”. While you can use candlestick analysis in all time frames, Investopedia.com explains a daily long legged doji candle as follows:

A type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day.This candlestick is often used to signal indecision about the future direction of the underlying asset.

Long-legged doji candles are deemed to be the most significant when they occur during a strong uptrend or downtrend. The long-legged doji suggests that the forces of supply and demand are nearing equilibrium and that a shift in the direction of the trend may be coming.

On the weekly chart where I marked the letter “D”, you can clearly see massive above average volume for this particular week. With Silver in a strong uptrend for many months, and the long leggeddoji being accompanied by extremely large volume at the highs, this is a sign of distribution to me.

With the short term change in trend, let’s now look at a prior area of consolidation on the weekly chart I have marked with a rectangle and labeled with the letter “E”. Viewing this from a big picture point of view it is possible that Silver may pullback all the way to this area in order to find major support; although I think it is “unlikely”.

Looking at the daily chart, Silver is approaching its rising 50 day simple moving average. This is often seen as an area for re-entry for those who have taken profits, or for those who want to add to their existing positions. The 50 day simple moving average is also seen as a low risk area for entry for those who felt they had missed the boat and have been patiently waiting to get in on the trend. There are also minor support and resistance levels I have drawn on the daily chart in the $33-$35 area that should be noted.

The bottom line for me is that silver is currently in the vertical phase of development using auction market principles and looking at the big picture time frame. I believe that Silver is “likely” to form a new balance area soon in the intermediate term time frame. Markets rarely make a V-top so this next period of consolidation will need to be watched closely for the breakout to the upside. I believe the probabilities are favorable for the highs in Silver to be retested again in that scenario.

It is at that point that I will personally be defining my risk, measuring the reward, and weighing the probabilities of a favorable outcome based on the current price and volume action at that time.

Discipline is critical to executing a well thought out trade plan.

Related Tickers: Sprott Physical Silver Trust (NYSE:PSLV), ProShares Ultra Silver (NYSE:AGQ), ETFS Physical Silver Shares (NYSE:SIVR), PowerShares DB Silver (NYSE:DBS), ProShares UltraShort Silver (NYSE:ZSL), UBS E-TRACS CMCI Silver TR ETN (NYSE:USV), Global X Silver Miners ETF (NYSE:SIL), iShares Silver Trust (NYSE:SLV). 

In full disclosure I am long silver futures since $18.25.  Feedback is welcome. Please email me at [email protected]

Written By Scott Pluschau, A Technical Trading Associate At ETF Digest

ETF Digest writes a subscription newsletter focused on technical analysis of exchange-traded funds. ETF Digest was founded in 2001 and was among the very first to see the need for a publication that provided individual investors with information and advice on ETF investing.  Even if you’re not a fan of chart analysis, ETF Digest provides insight and commentary into which global markets are “working” and why.

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