The iShares Silver Trust ETF (NYSEARCA:SLV) has been declining over the past five weeks after hitting resistance at $19.11, the 2.618 Fibonacci extension of the downtrend started from the February 23, 2009 high.
A number of bearish indications are present in SLV. First, there was an obvious pick-up in volume on the initial decline of seven days in a row. The countertrend rally was weak with a retracement barely 38.2 per cent (Fibonacci level) and occurred on only three days (short rally).
SLV has broken out of a Bearish Wedge and has moved back below the 50 period exponential moving average, an additional sign of weakening. The minimum objective target on a Bearish Wedge is the beginning of the Wedge, which in this case is $13.33, quite a ways lower (-20.7%) than where SLV now trades (Tuesday’s close: $16.81).
At the same time, there are several indications of strong support between $15.72 and $15.84, or 6.5 per cent to 5.8 per cent lower from Tuesday’s close, respectively. This price zone was identified by the market as support or resistance at least five times over a period of almost two and a half years.
SLV remains above its uptrend line started at the March 2009 low. It currently identifies a support level of approximately $15.85. Also, the 200 period exponential moving average is now at $15.49 and continues to slope upward.
There could be a good rally and continuation of the larger uptrend from this $15.72-$15.84 support zone. However, if SLV breaks through the zone and stays below it, other bearish signals kick in, such as the break of the neckline of a Head & Shoulders top reversal that is possibly now forming the right shoulder, a break down from the uptrend line, and a drop through the 200 period exponential moving average, both indications of the long term trend.
Disclosure: No current positions in SLV