If there weren’t a scarlet “B” for bubble around its neck, silver just may be a technical and fundamental buy. I stumbled into this stunning bit of news almost accidentally last week. While poring through charts late last week, I pulled up the iShares Silver ETF (NYSE:SLV). A month-and-a-half after the SLV’s rather infamous pop to nearly $50 and drop to the low $30’s, I expected to see a horrid looking chart, or at most, an extremely volatile range somewhere below $35. But I didn’t.
Instead of a slide, I saw an SLV chart building a base at $35. Sellers came in above that level but buyers came in below $35 even faster and more reliably. As my memory bank started triggering, I recalled the Fibonnacci sequence. Boiled way, way down, a Fibonacci sequence posits that stocks making large moves up or down will recover, or “retrace,” those gains or losses at predictable degrees. For instance, after the early 1980’s bubble popped, silver recovered 34% of its losses in the following weeks (yeah, I looked it up). And 34% is part of the Fibonacci sequence, exactly.
With silver supported below $35, I ran the numbers on a 34% retracement for the semi-precious metal. The technical trade set-up works out to $5 higher (the $15 fall for silver *.34) for a price target and $1 lower as a stop (if silver goes $1 below apparent support, sell). You can quibble on the details. In fact, you should quibble on the details and check out the graphs for yourself. Regardless, silver looks like a technical buy, and that fact freaked me out just a little bit.
Not trusting my lying eyes, Breakout invited Alix Steel, a reporter at TheStreet.com specializing in commodities, to give me the fundamental silver look from her sources. Alix says there’s a case to be made for silver, if not fundamentally, then certainly from a supply and demand perspective.
See the full “Breakout” video below: