SLV Still a Great Buy

Includes: GLD, SKF, SLV, SPY, XLF
by: Golden Economizer

Using SLV as the proxy for the price of silver, on Friday, March 27th, 2009, for the first time since August 25th, 2008, the 50 day moving average of SLV crossed above the 200 day MA, a formation known by technical analysts as the “golden cross”. SLV closed that day at $13.15.

Since then the spread between the 50 day MA and the 200 day MA has widened every day, a bullish sign.

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Recently the price of SLV has been oscillating around the 200 day MA, crossing above it on March 5th, March 13th, and March 19th, where it stayed for two weeks until dropping below it on Friday, April 3rd.

On March 31st, SLV dropped below the 50 day MA for the first time since December 9th, 2008.

How to interpret this technical data? Crossing below the 50 day MA and 200 day MA could be considered bearish for SLV. But the 200 day MA is still sloping gently downward, and the 50 day MA is still sloping steeply upward, and the spread between the two is still widening. Unless this trend changes, the 200 day MA will be leveling off at about $12.50 and may begin to rise.

SLV closed last Friday, April 3rd at $12.60

With the 50 day MA still sloping sharply upwards, SLV looks poised for a bounce off the 200 day MA in a continuation of its upward trend since the big November bottom. SLV hasn’t closed below $12.50 since February 4th, and appears to be setting a floor there. It looks like a limit buy order now between $12.00 and $12.50 will result in an excellent entry point for longer term investors.

But what about the short term? Let’s look at the 12 day EMA and 26 day EMA.

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SLV has had a very nice runup from $10.45, its lowest closing price so far this year on January 14th, to $14.34, its highest closing price of the year on Feb 23rd, a gain of 37.2% in less than six weeks.

The closing price stayed above both the 12 day EMA and 26 day EMA every day from January 16th to February 25th when it fell below the 12 day EMA and February 27th when it fell below the 26 day EMA.

Since then it has oscillated around both EMA’s until crossing below both on March 30th.

SLV’s price is now nearly 3% below the 26 day EMA, for the first time since March 10th.

What happened that day? It was the biggest market rally of the year and one of the biggest moves on the S&P 500 of all time, a 6% gain in a single day.

It appears that SLV was being unloaded that day in favor of more risky stocks.

If you had bought SLV at the closing price of $12.45 on March 10th, 2009, you could have made a gain of 5% by the close on March 13th, or a gain of 9% by the close on March 20th, not bad for just 8 trading days.

Previously, when was the last time SLV fell 3% below the 26 day EMA?

On December 1st, 2008, one of the scariest market days in recent history, when the S&P 500 fell by 9.7%, and SLV remained more than 3% below the 26 day EMA on December 2nd as well.

If you had bought SLV at the closing price of $9.18 on December 1st, 2008, you could have made a gain of 11% by the close on December 11th, or a gain of 23% by the close on December 17th.

When was the last time before that? On November 11th through November 20th, 2008, as the S&P 500 fell by 23% in eight trading sessions, and reached its lowest point in 12 years. Both of these time periods in November and December saw some of the highest selling breadth in market history. Investors were panic selling everything, not just SLV.

If you had bought SLV at the closing price of $8.86 on November 20th, 2008, you could have made a gain of 17.7% by the close on November 24th, in just two trading days, or a one month gain of 27.4% by the close on December 17th.

Now that SLV is again trading 3% below the 26 day EMA, it looks like a great buy for both the short term trader and long term investor in the $12.00 to $12.60 range.

In closing, let’s look at the possible effects of manipulation on the recent price of silver, which I discussed in my previous article.

Long term silver prices have been depressed by market manipulation for many years despite strong fundamentals, yet have been steadily climbing since 2000 despite all the manipulation. What might be some short term reasons that insiders in power would want to suppress silver prices over the last month?

On March 20th, 2009 SLV closed at $13.69, the highest close since February 24th. The following trading day, on March 23rd, 2009, Tim Geithner announced his new PPIF plan to the general public, to buy so called “toxic assets” using government sponsorship of private hedge funds. Of course it would not have looked good for silver prices to increase on that day (since it might make the dollar look weak), and the price of silver has been declining ever since as the treasury secretary continues to sell his pet program to congress and the general public. SLV’s share price has been declining ever since, closing at $12.60 last Friday.

Also, our president has been in the public eye every day since he left for the G20 summit in London on March 31st. It would not look good for the dollar price of precious metals to increase during that span of time.

GLD, the proxy for gold prices, has also been declining steadily since March 20th, when it closed at $93.59, 2.4% above its 26 day EMA. On Friday April 3, it closed at $87.59, 3.7% below its 26 day EMA. It would not look good for the dollar gold price to be rising when our president was conferring with world leaders whose countrymen buy our treasury bonds and other dollar denominated assets.

XLF, the proxy for big banks and the financial sector in general, has rallied 19% since the March 20th close, even though it had just rallied 30% since the March 9th market bottom.

SPY, the proxy for the overall US stock market, has rallied 10% since March 20th close, even though it had just rallied 12.6% since the March 9th market bottom.

This looks to me like financials have been being bought by insiders, in an attempt to manipulate public opinion in favor of the Geithner PPIF plan, and to support President Obama as he appeared on the world stage, pulling the S&P 500 up along with it.

But I doubt that these insiders would want to hold stocks in the incredibly weak financial sector any longer than necessary, and now they will begin to unload, making SKF a great buy right now near its one year lows. For the next few weeks, selling or shorting banks should be a good trade, especially the weaker banks such as BAC, C, and JPM.

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The above chart shows that the USDX, the dollar index weighted against a basket of foreign currencies, had been plunging rapidly since March 10 immediately after the recent market trough. It dropped again on March 23rd, the day of Geithner’s PPIF announcement, and then made steady gains until March 30th, but has been declining steadily ever since.

Interesting that the immediate market response was to dump the dollar, and that the insiders were apparently unable to defend the dollar and stop the decline of the USDX on the first day that the PPIF was announced. The USDX decline accelerated over the last few days while the president has been making public appearances in Europe. The March plunge in the USDX is considered quite large for a currency, which are usually slow moving, and took the dollar index from well above the 50 day MA to well below it.

Disclosure: Long SKF.