The case for buying silver has long been made; industrial use, ‘precious/rare’ metal, hedge against currency deflation and other bunker building theories …I get it and I own it. It is however a very volatile little nugget and as such also provides ample opportunities for trading.
Silver as measured by the iShares Silver Trust (ARCA:SLV) has enjoyed a rally of better than 500 percent from the 2008 lows up to the April 2011 highs. The weekly chart of the September 2011 silver futures contract also shows the metal falling hard off the highs near $50 – it has since gotten back on its feet.
On the daily chart looking back to March 2010 note that September 2011 silver futures contract has kept its most recent major up-trend starting in August 2010 – the blue line. At the same time silver also found a recent low at the 50% retracement level from the August 2010 – April 2011 rally.
On the close up daily chart looking back to March note the big narrowing trading wedge that has formed since the large sell-off in early May. On Friday July 19 silver broke out of this wedge on decent volume. That three charts showed here are of the September 2011 silver futures contract, however the chart of the the iShares Silver Trust (ARCA:SLV) are the same.
Using the the iShares Silver Trust (ARCA:SLV) the trade I see setting up here is to go long near $41.50. stops can be set around $38 and a profit target at $48. As a cautionary note however, please see that gold has had a massive rally in recent weeks. If and when it should pull back some here I would also envision the same happening for silver. Given the long-term uptrend in silver, should you get stopped out on this trade wait for more consolidation and another setup. That’s how this business works, it’s not about hitting a homerun every time, it’s about finding high probability setups and managing your risk.