Where is Silver Headed After Surging Higher on Tension with Iran?

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Mike Hammer | January 7, 2020 11:21am NYSE:SLV

NYSE:SLV | News, Ratings, and Charts

Silver “enjoyed” quite a pop from the US-Iran clash. Now that everyone’s taken a deep breath – at least, everyone trading metals – what’s the scenario from here?

As always, first the chart – this time for SLV, the unleveraged silver ETF that trades on US markets.

slv ishares silver trust

What the chart of SLV says is silver probably got a little too over-extended in the short term. Silver had a nice, fairly balanced run-up the previous 3 weeks or so, then came US-Iran. Of course it popped, any big shooting-fighting is massive geopolitical uncertainty.

But at that point investors were pretty well extended, as the RSI indicates.  The RSI had already hit 70 and was starting to back off, which you want to see for a run to continue. The pop caused RSI to go back up, and as there wasn’t a lot more buying capacity out there at that moment the pop was pretty well capped right there.

So just from the “optics” of the situation, we would expect silver to settle quickly back down to where it came from.  And that’s exactly what we saw yesterday. Silver closed right in Friday’s afternoon trading range.

The support and resistance picture is very clear on this chart.  Silver had already run up against a significant resistance ceiling, which already contained silver prices twice in the past.  That’s part of why silver’s run-up had basically stopped on Friday after trying to get going again earlier that week. For the pop to give a continuance to the run, silver needed to close well above resistance.  It didn’t, so now silver is back to the hard work of hammering up through the ceiling.

Above that there is what is sometimes called “hard resistance”, which we’ve labelled “big resistance”. This is a place where a previously-positive pop failed to continue. Such places are notoriously difficult for short-term runs to break through.

So silver’s upside seems limited in the short term.  Until the RSI works itself back down there is little chance – barring a bigger shooting match – that silver will break above “big resistance”.

On the downside there is very strong support around 16.25. It would take a very bleak economic picture, including a massive drop in demand for silver – to break down below that.  But the distance down is tradeable if you can find a good stock to short, or possibly a nice put option setup that gives a good risk-reward picture.


The Gold Enthusiast

DISCLAIMER: The author holds no position in any mentioned security.  The author is long the silver sector via a small position in USLV. He may daytrade around this position but has no intention of trading out of this core positions in the next 48 hours.

The iShares Silver Trust (SLV) was trading at $17.00 per share on Tuesday morning, up $0.06 (+0.35%). Year-to-date, SLV has gained 6.32%, versus a 21.62% rise in the benchmark S&P 500 index during the same period.

SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 33 ETFs in the Precious Metals ETFs category.

About the Author: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.

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