Silver: The Selling Has Ceased

The iShares Silver Trust ETF (NYSEARCA: SLV) has made a strong comeback from important support levels. Many participants who were cautious about investing in SLV prior to the outcome of the U.S. Fed meeting will now join the party and drive the price higher. The selling has abated and a fresh leg of the rally is beginning.

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Source: Gekkos

My readers would not have been taken aback by the sharp 2.75 percent rally in SLV yesterday since I have been calling for a buy in SLV near $16.30 with a tight stop-loss just below $15.90. In my previous article titled Silver: Is The Selling About To Cease?, I had clearly said that long positions can be created in SLV since the loss potential was minimal. Here is what I concluded with:

The market is overreacting right now to the growing expectations of an interest rate hike at next week’s Fed meeting. I do not know when the normalcy will restore but I believe that investors can make use of the current fall to create, or at least, consider long positions in SLV and silver. For SLV investors who want to keep the losses minimal, placing a stop-loss below $15.90 will be a good option.

As we can see from the daily SLV price chart below, the ETF dropped to a low of $15.94 before punishing the bears. Volume remained strong in yesterday’s session, highlighting investor participation.

Source: TradingView

The key level to watch now is $16.50. This is because the 50-day SMA of $16.4860 is in close contact with the 38.2 percent Fibonacci retracement of $16.50. These two overhead resistances represent the first big hurdle for SLV. When this resistance is crossed, the next target is the recent top of $17.50.

The point here to note is that this was the first big drop after SLV detached from the lower-top, lower-bottom cycle. Normally, such a drop tends to provide great entry levels from medium-term to long-term perspectives since it shakes off the complacent investors and attracts the value-driven investors.

At the time of writing this article, Silver is attempting to dislodge the bears sitting around $17.50. They are probably expecting to make some immediate gains on any pullback since the 50-day SMA of $17.43 and the 38.2 percent Fibonacci retracement of $17.44 are nearby. But, in my opinion, the zone of $17.80-$18.00 should be watched carefully.

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Source: TradingView

The breakdown in the U.S. dollar (NYSEARCA: UUP) will also aid the precious metal in the medium-term. I am closely tracking the action in the greenback which eerily resembles an extremely bearish pattern known as the Head and Shoulders pattern. This pattern marks a reversal and indicates that losses may follow for the underlying if the crucial neckline support is violated. For the U.S. dollar index, this support is at 99.50. Below this support, the index can slump to 95-96.

Source: TradingView

The possibility of a further correction in the U.S. dollar must be appalling to many investors given that there are broad expectations of at least two rate hikes left in 2017. I completely understand the concerns, but this breakdown does not have to happen just around the rate hike. It can happen a lot before that, which would give the U.S. Fed enough room to raise the rates. In such a case when the dollar has corrected before the meeting, a rate hike might strengthen the dollar unlike yesterday when it dropped.

Conclusion

The selling has ceased in the iShares Silver Trust ETF and investors should create long positions now and adopt a buy on dips strategy going ahead. SLV is expected to clear the $16.50 barrier soon and head towards $17.50 in the coming weeks.

Silver is repeatedly striking the bears around $17.50 and the zone of $17.80-$18.00 should be tested soon. The breakdown in the U.S. dollar will also aid silver’s and SLV’s rally in the medium-term.

Given the volatility in the precious metals space, it is best to use the dips to create positions with a long-term horizon to smoothen the kinks and amass huge gains.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.