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I received a bullish signal on the iShares Silver Trust (NYSE: SLV) when I ran my scans after the close on Friday.
One of the things that caused the bullish signal was a bullish crossover of the daily stochastic readings. Looking at the daily chart, we see that the last two times these indicators have made a bullish crossover, it has been a good sign for the ETF. The crossover in November led to an 11% gain over a month and a half. The bullish crossover in December preceded a 17% move to the upside.
Based on the previous moves when the stochastic readings crossed, the short-term outlook for the SLV is bullish. I also like the fact that it has been using the 50-day moving average as support recently. The concern is the potential resistance up at the $17.90 range. That was the low last May and it is just within the target move based on the 11% from the crossover signal in November.
If we take a step back and look at the weekly chart, we see even more potential concerns for the SLV.
We see the same resistance point from the low in May, but we also see a downward-sloped trendline that connects the highs from the past two years. It is also interesting how the low connects the close just before the gap downward in the spring of 2013. I can’t say I have ever seen something like this before where highs that connect to form a downtrend also connect to a low before a gap.
Another potential source of resistance is the 52-week moving average. When the ETF tried to rally last spring, it was halted at the trendline. Last summer it managed to move above the moving average, but then got capped by the trendline connecting the pre-gap low and the post-gap high. Now the moving average and the trendline seem destined to converge in the $17.90 area—the same price level that served as a low in each of the last two summers.
While I like the odds of the SLV moving higher in the coming weeks, I wouldn’t count on it moving more than 11%. Not with all that potential resistance converging in one area. Should the SLV break above all of those resistance points, it could make a huge move to the upside and there should be plenty of time to get in on it.
One thing I will be keeping an eye on is the Commitment of Traders report for silver. The bullish sentiment had waned back in the fall, but it has risen over the last four months and is as high as it has been in the past year. Should silver rally and the SLV run into all those resistance points, if the bullish sentiment is too high, I would look for the SLV to fall back. If it can rally without the bullish sentiment getting too high, it will stand a better chance of breaking through the layers of resistance.
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