As I alluded to last week, the rally in the U.S. Dollar over the last few weeks has exerted considerable pressure in our markets. Precious metals (along with most other commodities) have been particularly hard hit as the Greenback has risen in value regaining some of its “safe haven” status amid the economic chaos in the Euro-zone. While the longer term outlook regarding this relationship is still very cloudy, silver and gold have recently found some support and present a decent short term trade, especially if the now extended U.S. Dollar pauses for a breather after some serious running up.
Looking at a chart of the popular iShares Silver trust etf (SLV) we can see that over the last year and a half or so, the $26 level has held as support on a couple of occasions and is currently attempting to stop our most recent decline. While the trend is unequivocally down, Thursday’s action offered some positive indications that SLV could be setting up for a short term move higher.
The $26 level actually already held last week and offered a nice two dollar bounce and although that move was quickly sold down this week, sellers were not able to push price back down to last week’s low as buyers rushed in late Thursday. While the recent failure around $28 would present the first area of resistance on a move higher, SLV should eclipse that level and test $30-$31 assuming that Thursday’s hammer candle can hold as a higher high on the very short term view. Because this trade idea goes against the prevailing trend, very tight stops and targets are recommended.
Bonus chart — USD/CAD
The usd/cad continued its run higher this week and encountered some resistance at around 1.03, which coincides with the last real lower high pivot level before it broke down early this year. Because I often trade this pair during the day, I will use it as my proxy to gauge dollar strength.If this level can stall the dollar’s recent advance, it will go a long way towards allowing not only SLV, but to have a relief rally. If 1.03 cannot hold here, look for our markets to slip lower as the dollar continues to apply its pressure and look for a similar scenario at the next big level for this pair at 1.04.
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