A Technical Look at Silver Stocks Part 1

The month of September was an incredible one for all gold bugs out there. The XAU gold stocks index increased in value by 19.88% during this month. As well, gold bullion tacked on $69.90 an ounce, increasing 10.51%, and silver, for the first time in a while, rose by a faster pace, increasing in value by 13.81%.

As predicted, the US Dollar broke critical support at 80, and melted down after that point. The US Dollar is so weak that for the first time in 40 years, the Canadian Dollar is worth more than a green back.

With such a large increase over a short period of time, one might think that there is little profit potential out there. I do not believe this. Rather, I feel that this is the beginning of a much larger move. And more specifically, I think that silver has the most potential.

One of the reasons I believe this is because silver has, until recently, been lagging gold. The following chart shows a weekly chart of the SLV/GLD ratio. Basically, when this chart is falling, silver is under performing gold. When it is rising, silver is outperforming gold. The reason I am posting this chart again is because an RSI buy signal has just been triggered:



The other candle chart beneath the ratio represents silver bullion by itself. The two charts are similar, but we can get some additional insight by looking at this perspective. The main thing to take away from the above chart is that silver is "cheap" relative to gold.

Let's have another look at silver. Here is a daily candle chart of SLV, the silver bullion ETF:


The main point to note in the above chart is that SLV gapped up above its 200 day moving average. This is an incredibly bullish sign, in my opinion. In the event of any sort of correction, silver should find support along the blue rectangle drawn.

Finally, let's have a look at this week's commitment of traders chart:


The last time I posted this chart, I said that the commercials had reduced their short position to extremely bullish levels. Now that a few weeks have past since then, the chart is still looking very bullish. The large speculators are only now beginning to "wake up", as their position only this week is larger than the small speculators. The commercials can still increase their shorts by a fair amount before things start looking bearish.

A Technical Look at Silver Stocks Part 2

If you feel that silver will rise, then probably the best way to capitalize on this opinion is to buy the silver ETF. However, I prefer to hold silver stocks, as there can be more leverage in doing so, and that way I don't have to convert my Canadian Dollars into US Dollars to buy the ETF.

The problem with buying silver stocks is determining which ones to buy. Ideally, there would be a silver stocks ETF, but since there is not, I have tried to find stocks that have a close correlation to movements in the price of the metal.

Two such stocks are Silver Wheaton, and Pan American Silver. I have only selected these stocks because they seem to move along with the price of silver, which is all I'm looking for. Here is a chart showing Silver Wheaton on the top and the price of silver on the bottom:


As you can see, this stock tends to move with the price of silver. Let's have a closer look at Silver Wheaton:



As you can see in the above daily chart of SLW.to, the stock has formed a bullish island reversal pattern, in my opinion anyway. As well, notice that the RSI is not even close to being overbought, which cannot be said for most gold stocks.

However, this does not make this stock immune to a gold correction. Although not shown, the Gold Commitment of Traders chart looks much more bearish than the silver COT chart. Gold stocks can correct at any time now. These type of corrections are very difficult to time.

My plan is to keep holding the aforementioned silver stocks until their 9 day exponential moving average is broken on a closing basis. This method is much less stressful than attempting to get out at the very high of the move. Thanks for visiting this site.

The Bull Flag in the Monthly XAU Chart

The previous post discussed some significant breakouts in the Euro charts, and the post before that showed some major developments in the US Dollar chart. All of this was meant to be indirect bullish evidence in favour of gold and gold stocks. In this post, let's have a look at gold stocks directly.

In order to understand the upcoming chart, I would urge you to read the following two articles:

• Ripples, Waves, and Tides
• How to Use Volatility to Make Trading Decisions

These articles go over why the long-term gold stocks chart looks so bullish, and the reasoning behind this bullishness. Here is an updated version of the chart mentioned in those articles:



If you do not have time to read the aforementioned articles, here is a summary:

First, a bull flag has formed. Traditional technical analysis suggests that once prices breakout out of the flag, the subsequent rally should be approximately equal the height of the flag pole, which would take the XAU to the 210 area or more, in this case. The XAU has just broken out of the flag.

Second, the bollinger band width has just triggered a buy signal. It has touched the "launch pad" and bounced off. This is another long-term buy signal. You can see for yourself that whenever the bollinger band width reaches the launch pad level, a huge price movement follows.

Third, the indicator at the top, which is not stochastics, but based on volatility, has given a buy signal by crossing over 20.

Finally, the XAU is approaching levels not seen in the history of the index's existence. This can be viewed as a giant bullish triple top breakout. All in all, this all equates to a tremendously bullish situation for gold stocks. This does not necessarily mean that gold stocks will rise tomorrow, but it does mean that they will likely be much higher in the weeks ahead.

The Euro is Fueling Strength in Gold Stocks

In the last 5 weeks, the XAU has shot up in value by more than 40%. It is important to stay disciplined during these times, and to not let massive profits cloud your judgment. This post will look at why gold stocks have blasted off, and, more importantly, if it's still a good time to buy in a objective and disciplined manner.

As mentioned in the previous post, some of gold's strength is coming from the currency scene. I mentioned the US Dollar's weakness, but I did not mention the Euro's strength. Here is a Point and Figure chart showing the Euro breaking out of a bullish triple top formation. This chart goes back in time about 11 months.


On September 11th, I said that, "it [the Euro] has not yet broken through the overhead level of resistance. Once the Euro busts through this level, it will likely add more fuel to the fire for gold and gold stocks." This is exactly what ended up happening. This event is a bullish development for gold, and suggests more upside potential on the way.

Let's have a look at a weekly candle chart of the Euro just so that we can get another perspective.


The chart above goes back about 4 years, and it clearly shows the Euro breaking out of a bullish long-term double top formation. Since the Euro and the US Dollar tend to travel in the opposite directions, this is a major piece of bearish evidence for the US Dollar. This, in turn, is bullish for gold.

But perhaps you are still not convinced that the US Dollar is in trouble. Let's have yet another look at the Euro to make the case even stronger. The chart below is a monthly chart of the Euro. This chart goes back to 1993:


There are two major points in the above chart. Firstly, there is an enormous inverted head and shoulders forming, and second, the Euro has broken out of a triple top formation on this time scale as well. I feel that this extremely bullish for the Euro for the long term.

So, what does this all mean? It means that even though gold stocks have gone up 40% in a relatively short period of time, there is still a tremendous amount of upside potential left. There will be corrections along the way, and these corrections are going to hard to predict, but if you can hang on, you will likely be rewarded handsomely in the months and years to come.