Monday, August 22, 2011

Trade Update: SLV

On Friday we picked up a full position of SLV on a break of $41. You can see the entire zone of support between $38 and $41 going back for two months on the chart. So, I don't think we have to worry about anymore 35% declines such as happened in May.

The only thing that worries me on the chart is the stochastic which as you can see is about as bearish as it can possibly be. It is deeply embedded and turning over. It looks as though the red line and the blue line are intersecting marketing a crossover. On the other hand the stochastic could stay deeply embedded for months without a significant pullback. Right now I think the risk is to the upside in silver and therefore in SLV.

On the positive side it looks like the 50 day moving average is trying to turn up and overtake the 100 day moving average. Bullish stocks generally trade above their 50 day moving average, but the shorter-term moving average usually trades above longer-term moving average. You can see on the chart that this was the case during the run-up from $20-$47. Even after the crash we didn't get our moving average crossover until about July. The moving average crossover is a lagging indicator. It looks like SLV is trying to return to this condition.

We will wait for chance to put in trailing stops.

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