Wall Street advanced cautiously on Monday and major indexes were trading flat for the majority of the session. Investors have a round of central bank meetings and economic data to digest this week, and likewise, trading will be heavily influenced by forward looking commentary regarding interest rates, inflation, and growth. To kick the week off, the Reserve Bank of Australia announced their interest rate decision last night, and this looks to be followed up by the FOMC Minutes during the day today, and lastly back-to-back interest rate decisions from the Bank of England and the European Central Bank early Thursday morning. Gross domestic product data is also slated to come out of the Eurozone and England on Wednesday, while Canadian unemployment is the last major event for the week on Friday.
As investors wait for central bank decision to hit the wire, equities and consumers around the world will likely continue to feel the pressure of rising oil, especially as WTI crude futures pushed past $108 a barrel on Monday. Likewise, precious metals are gaining momentum on continuing fears of rising inflation and general economic uncertainty. Gold jumped to $1,440 an ounce early yesterday morning, while silver hit an all-time high of around $38.60 an ounce. While the two metals usually move hand in hand, silver has been outperforming gold in recent months, and it seems that silver still has room to run if it were to fully catch up with gold from a historical perspective [Inflation-Fighting ETFs Back In Focus].
As always, start with a long-term perspective, then gradually zoom-in and pick the latest significant trend you wish to focus on. Consider the daily chart below for the iShares Silver Trust (SLV), which tracks the spot price of Silver Bullion. Since its low point in October of 2008 ($8.45 per share), SLV has been in a clearly defined uptrend. During the fist wave, starting from September 1st in 2008 until September 1st of 2010 (red horizontal line), SLV would rally higher, then gradually come back down towards its 200 day moving average (yellow line).
After September 1st of 2010 however, SLV clearly defied its past wave-like pattern and entered into a far more aggressive uptrend. Notice how after the red horizontal line SLV’s uptrend becomes steeper, and even more importantly, the fund uses its 20 day (green line) as primary support, unlike the initial phase of its longer-term uptrend during which SLV would use its 200 day moving average as support. This ETF appears to bounce off its 20 day moving average every time it hits it, except in January of 2011 during which SLV endured a slightly greater correction just underneath its 50 day moving average. Given that SLV has continued to soar to new highs after bouncing off its 20 day moving average, its fairly safe to say that until SLV breaks below its 50 day moving average (blue line) the uptrend is still fully intact [consider The Definitive Silver ETF Guide].
SLV opened above $37 a share for the first time on Monday, and the fund will likely continue higher in the coming weeks given the longer-term strength of its uptrend and supporting fundamental factors. The next likely level of resistance is the $40 mark, while support comes in at the 20 day moving average, right above $35 a share. Any brief correction may be used as an entry point, while a close below its 20 day moving average should be treated as an alert, since the fund may then quickly fall to its 50 day moving average or even lower [Commodity ETFs Get No Love From Investors].
Technically speaking, SLV remains in a strong uptrend, and from a long-term perspective investors can use dips/corrections as great opportunities to establish long positions. When taking into account fundamental factors, the case for SLV remains bullish. This precious metal not only mimics the safe haven traits of gold, in serving as a hedge against inflation, market volatility, and geopolitical tensions, its demand is actually primarily driven by industry. In fact, GFMS forecasts that industrial silver demand will rise by one-third in the coming years, up from 15,000 tonnes in 2010 to over 20,000 tonnes in 2015. Economic momentum in emerging markets is also picking up, and likewise the price of silver is increasing thanks to rising incomes and growing demand [also see Precious Metal ETFs: Physical Vs. Equity Exposure].
As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: Long January 40 Call.