SLV – Anatomy of a Healthy Rally
by Dr. Duru
In mid-May I tried to make a case for buying silver as a complement to holdings in gold. At the time, the gold/silver ratio looked ready to break lower and provide silver some lasting out-performance. Instead, silver peaked for the rest of the summer and gold regained its edge. Over 4 months later, the gold/silver ratio is finally at its low for the year and silver is now looking stronger than ever trading at all-time highs (thanks to many of the world’s central banks).
As I reviewed the chart for the iShares Silver Trust ETF, SLV, I was struck by the strength of so many of its technicals. Poor volume has been a major complaint that I (and so many others) have had about the stock market’s rallies since last winter, so seeing the strong buying support for SLV is a welcome relief. Of course, I think this strong buying support is well-justified by the fundamentals of de facto competitive devaluations amongst the world’s major industrial economies.
The chart below has many attractive features that I wish I could find in more stock charts. In late August, silver swiftly broke out from a months-long consolidation pattern. This consolidation began with strong buying and ended with a resumption of strong buying. All summer, this consolidation held around the support of the 50-day moving average (DMA) and the 200DMA. As if that was not enough, the last two weeks of this near straight-line rally has featured two days of bullish engulfing patterns where sellers took SLV below the low of the previous day and then buyers closed out the day higher than the previous day’s high. None of this means that SLV cannot pullback; it likely will at some point soon. But this behavior does indicate that buying interest is strong and should be sustained for quite some time, especially as so many major currencies continue their race to the bottom.