Monday, September 13, 2010

Technical analysis SLV

Above is a ~4 month chart of the iShares Silver Trust ETF. Many view this ETF as a trading tool to swing trade Silver and it's price movement. The price trades just below the spot price of physical Silver.

Last week the May high (and resistance level) of $19.44 was pierced producing a new high for the year. (Hit a high of $19.63) Today in early trading, SLV hit a high of $19.72, if the bullish trend continues, we may see the price near or above the 2008 high of $20.73 (Green horizontal line) by the end of the year if not sooner.

  • SLV has higher highs and higher lows since 8/24/10 ($17.48).  Bullish
  • Trading above the moving averages of 15, 50 and 100.  Bullish
  • MACD is positive, above the center line. Bullish
  • Stochastics are 'embedded', both K and D lines are above the 80 level. Bullish
There are quite a bit of articles regarding the manipulation of Silver in the US Market. JP Morgan (Owner of the largest short positions in Silver) announce last week that they will be closing some of their proprietary-trading operations
Excerpt from the WSJ:
The bank hasn't focused much on proprietary trading, but its small proprietary-trading desks are nonetheless affected by the Dodd-Frank financial-overhaul law, particularly by what is known as the Volcker rule, which curtails proprietary trading, private equity and other investments that banks make with their own capital rather than for their clients.
J.P. Morgan has decided to exit from all proprietary trading, and its commodities proprietary-trading desk, which is in London, was one of the largest such trading desks at the bank, according to a person familiar with the matter. The status of the other proprietary-trading desks is unclear, but they, too, have been or will be closed, the person said.

The bank hasn't focused much on proprietary trading....? Hmm... How about the worlds largest short position in Silver? Were those trades specifically for their clients?

Description of iShares SLV
The sponsor of the Trust is BlackRock Asset Management International Inc. (the Sponsor). The trustee of the Trust is The Bank of New York Mellon (the Trustee) and the custodian is JP Morgan Chase Bank N.A., London branch (the Custodian). 

So what is the relationship between holding a very large amount of Silver in a vault in New York and the largest short position in Silver? (We do not know)

Back to the analysis: Even if SLV does produce a new high, the past 2 year history shows us that it has always pulled back into a trading range. Will this be the case this time around?

With the price of Silver increasing, there may be a short squeeze sending the price higher going forward. The bears looking at the past history of Silver may think that it will pull back again to the $17 level and the $20 area is a good place to short. If the squeeze continues, they will also be forced to buy-back sending the price higher.  So the theory goes...

Keep your eye on this one as we think it's going to be interesting going forward.

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