Silver prices are now at the starting line of an explosive rally which could see $25.00/oz plus before the year is out. The de-leveraging sell off which hit the markets last year has effectively delayed the rise of the precious metals by about a year in our humble opinion. However, both silver and gold prices are both gaining momentum and are now well positioned to show their true strength during this forthcoming rally.
Taking a quick look at the chart we can see that July was fairly flat for silver prices, however, buyers have been active recently and pushed silver along with a strong rally to the $20.00/oz level. We are now looking for silver to push through its resistance level of $21.50 or thereabouts and go on to dazzle investors. Against this move are the technical indicators which are overbought and languishing in the overbought range. This is a worry for us, however, they could stay that way for some time in a consolatory sideways pattern and unwind a little.
A new all time by gold prices will also help to drag silver higher whether we are ready or not for this next leg of the rally.
As you are aware our largest holding in this sector is Silver Wheaton (SLW) which we use both as an investment vehicle and an options trading vehicle from time to time, so we will take a quick at its chart. As we can see two days of profit taking reduced the stock price, however, Friday saw the buyers return for a nice 2.75% gain. Hopefully, we can move higher next week on the back of stronger silver prices. The indicators are close to the top of their ranges, which is not where we like to see them when buying stock. It's a difficult call when the fundamentals are in favour of higher prices and the technical indicators suggest otherwise. There is never really a perfect set up for making a purchase or a sale for that matter, so our hope is that the indicators can go sideways from here. If silver prices do ‘pop’ to the upside then the charts will look very interesting indeed and could tempt us into looking at a ’short’ play in the form of a few puts. Again not a perfect set up as we are in a bull market and would prefer to go with the trend instead of against it.
Another point to consider is that the September Series of Options expires on the 18th September, 2010, so it could get rough towards the end of the week as the books are squared. Options trading is volatile and risky so go gently with them and expect to be bounced around a little. Our last trade which ended with a profit of 79.46% was under water a few times before we finally closed the trade.
Stay on your toes and have a good one.
Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.
On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.
The latest trade from our options team was slightly more sophisticated in that we shorted a put as follows:
On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday.
Disclosure: Author long SLW and GLD
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