The Silver Market Reversal and How to Play It
On Friday it appeared that silver futures (/SI) were set to break below the critical $33 support level and make a run at the next area of support at $26.30.
The trade (outlined here), at least on the chart, seemed relatively easy. As with most things in the market, things that seem too good to be true usually are. This trade was no different.
Bulls, on the brink of a 22% plunge, pulled a major reversal in Monday's session and pushed silver futures up over 4% on the day. The momentum has carried over into today's session, as silver futures are currently up 1.9% from yesterday's close to $36.10.
Some of the biggest upside moves occur after reversals, as buying momentum is accelerated by short covering. Bulls are not out of the woods yet, however, as they still have to break above a few levels of resistance in order to execute a full reversal.
Investors who believe that silver is going to break out to the upside might want to consider the following trades:
- Silver futures have a few areas of resistance to break above in order to provide upside confirmation. The first level is $36.77. A move above that price would be a good early entry point, with $33.79 (Monday's low) serving as a clear exit area. After $36.77, the resistance levels to watch are at $37.86 and $38.76.
- If you use ETF's, take a look at the iShares Silver Trust (NYSE: SLV). The early entry point would be if shares can break above $35.85. $33.22 (Friday's high) would serve as the exit price.
- Silver stocks such as Silver Wheaton (NYSE: SLW), Couer d'Alene Mines (NYSE: CDE), and Silvercorp Metals (NYSE: SVM) all stand to benefit should silver prices break out to the upside.
Investors who believe that this run up in silver is only temporary may consider these alternate positions:
- A short entry at this point is dangerous. The level to watch if you are bearish on silver futures is $33.79. A break below that level would provide an excellent entry point, as that would potentially set up a run down to $26.30.
- If you use ETF's, the level to watch on the iShares Silver Trust is $33.22. If the price breaks below that level, it may set up a move down to $26.11
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