Commodity Chart Of The Day: Silver

Includes: AGQ, SLV
by: Matthew Bradbard

In the last 5 weeks, silver has picked up just better than $2/ounce, lifting the price to its 50 day MA. That pivot point -- identified by the light blue line -- has served as a magnet for the last week, as trade has been teetering on both sides of that level. For regular followers, you should gather that short term, I am anticipating silver prices to trade south and I've advised clients to keep powder dry to buy at a lower level if given the opportunity. In the chart above, you can see the triangle formation I drew out and before prices reach the apex, we should see a breakout higher or lower that should set the tone for the immediate leg. To be clear, in March futures, a trade above $32 or below $31.25, and this should happen into next week.

Though I'd prefer to be a buyer from lower levels, those attempting to capitalize on a bearish trade, here's my trade idea. Back ratio spreads; for instance, selling just out of the money puts and then buying multiple further out of the money puts in the same months. I think on a breakdown, May futures could trade $1.50-2 lower in the next few weeks. By implementing this type of trade, you are able to exploit a volatile trade lower. It allows flexibility with multiple legs and on a move higher, traders should not feel as much pain as an outright short futures. When weighing if I should trade futures, I thought you would need to risk a trade above the 100 day MA -- in May currently $1 above current prices, and I see the options trade allowing just a little less exposure.

The risk off trade has yet to happen… when it does, which I believe is in the near future, metals should get hit, in my opinion. I think money flows out of equities, which eventually will flow back into commodities. If these occur and the timing is right, metal traders should get an opportunity to buy both gold and silver from lower levels. I also want to point out that as the U.S. dollar appreciates, though it may be a flash in the pan, it will likely pressure metals short term. For what it's worth, the greenback is above its 50 day MA for the first time in 4 weeks as of this post. I see the next upside resistance in the dollar about 1% above current trade.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.