Silver could get interesting with a washout here at major support. I like silver, but it is a fickle market fraught with volatility that can burn your ass in a big way. I think silver is best traded from the extremes, bought when severely over-sold and sold on a Rhino horn. Silver is sitting on strong support at 33.50. The chart is seriously bearish at this point with price below both the 18 and 45 day moving averages. Price is below the Bollinger band and will likely come back today. RSI is approaching over-sold levels at 37 and stochastic will likely embed today with the third day below 20. The character of the embed is important as an indicator of downside momentum. If stochastic levels off and goes sideways, momentum will be accelerating to the downside. If it takes on a positive slope back toward 20, then a move back into the trading range between 33.50 and 38.50 is likely.
I would love to see silver crash through support here. I would set up a certain test of the 200 day moving average at 31.50. This would result in a severe over-sold condition and set up a buy on the bullish stochastic cross of the 20 level from below. This trade would be ideal with a short duration SLV call option, or possibly a longer term play way out of the money.
Lets look at SLV. Price has bounced at strong support of around 32.50. Notice that price is also below the lowest Fibonacci retrace level, a 61.8% retrace of the move from 26.03. Typically a move this deep below the 61.8% Fibonacci level ends with a full 100% retrace. It isn’t guaranteed, but is more likely than not. A move to 26, if in the cards, will not occur all at once, certainly not from our current level that is approaching over-sold conditions. I would think that the initial impulse would be take us to the 200 day moving average or slightly lower. Then a a rally approaching a future swing high that will be lower than the current one at 35.85. I think a good buying opportunity will present itself at the 200 day moving average that will play the bounce and quite possibly the bottom. If a full retrace is in the cards, a stop will get you out of the market for the move. A great trade IMO might be a Jan 12 35 Call option.
PSLV, the real and 100% allocated silver bullion fund, has bounced at strong support around the 15.0 level. This is the 5th time price has found support here. This chart tends to make you believe that 15 is the floor and lower price is unlikely. Normally I would agree, but the reason this chart looks stronger than the SLV chart is the fact that PSLV is carrying a 15% premium to NAV and has been outperforming both silver and SLV. If we see a big pullback in silver I expect some of this large premium will come out and therefore under-perform relative to silver and SLV. With that said, a pullback all the way to 11.53 seems a bit far-fetched. The fund is so new that a 200 day moving average is not defined yet. My guess is that it will paint somewhere between 11.50 and 15.0, say 13.0 maybe. I would be happy to buy and hold at this level.