Tuesday’s ETF Chart To Watch: iShares Silver Trust (SLV)

by on May 3, 2011 | ETFs Mentioned:

Wall Street started the trading week on an upbeat note after news of Osama bin Laden’s death on Sunday night sparked optimism in the dollar and pushed overseas markets broadly higher. Speculators were quick to sell gold, silver, and oil in the futures market overnight, but the reaction was overdone and the three hot commodities were quick to find support and work their way back up during NYSE trading hours on Monday. Oil has been slowly rising since its last violent sell-off  earlier in mid-April, and crude futures are once again eying the $115 level as May contracts soared past $114 a barrel at the market open [see Thursday’s ETF Chart To Watch: SPDR S&P Oil & Gas ETF (XOP)].

Silver has been shining brightly these past months as the precious metal has soared to record highs of nearly $50 an ounce. Volatility has been abundant in both the futures market and in the daily price action of the iShares Silver Trust (SLV), rewarding those with a keen eye and a quick trigger finger. On April 5th we issued a chart to watch for SLV, citing the fund had opened at a new high and was likely headed higher in the weeks to come [see Tuesday’s ETF Chart To Watch: iShares Silver Trust (SLV)]. Since then, SLV has gained more than 21%, while the ETF also encountered brief profit taking at the $40 level as predicted. Silver futures plunged more than $6 an ounce Sunday night after news of Osama bin Laden’s death sparked a rally in the U.S. dollar. Silver bulls with a long-term investment horizon ought to consider the possibility of an upcoming correction [consider The Definitive Silver ETF Guide].

Chart Analysis

Long term fundamentals for silver remain favorable, but the metal’s robust uptrend is worrying some shorter-term traders who are fearful of an impending correction. Take a look at the daily chart for SLV below.


Click to Enlarge


Consider SLV’s most recent sell-off yesterday and notice that the price plunged significantly, with the daily low dipping below the  April 26th (previous sell-off)  low of $43.55 a share. If SLV manages to hold support above the $43 level in the coming days then it’s probable that the fund will hit $50 within the next two weeks, given the strength of its ongoing uptrend. Likewise, if silver prices continue to decline further as profit taking accelerates, the next probable level of support comes in around $40 a share.


The nearly parabolic rise of SLV should be treated as a sign of caution, and likewise violent sell-offs have proven to be highly profitable buying opportunity for day traders. Aggressive investors interested in establishing longer-term exposure ought to consider buying at current levels, while those with a smaller risk-appetite should wait for SLV to establish support above $45 a share [see Three ETFs For $50 Silver]. A close below $43 a share in the coming days would call for re-assessment of the ongoing uptrend, as the fund may be due for a more significant correction down towards $40-$35 a share. The next upside target is conquering the previous high of $48.35 set on April 28th [see more technicals of SLV here].

As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: Holding January 40 Call on SLV.