The iShares Silver Trust (SLV) , the largest silver ETF by assets, could be showing the early signs of making a cup and handle chart formation. One of the most potent chart patterns, the cup and handle is spotted when a security makes a “U” shape, forming the “cup.”
From there, the stock or ETF rises to test old highs where it will “incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks… then it takes off,” according to Investopedia.
Although SLV is down 5.7% in the past month, it has jumped 14.4% since early August, more than quadruple the gains of comparable gold ETFs. According to Bank of America Merrill Lynch, gold will weaken along with a gradual rise in interest rates, with bullion hovering around $1,300 per ounce in the fourth quarter and dropping to $1,294 an ounce next year.
The bank, though, anticipates silver prices to average $26.38 an ounce due to increased economic activity, which would support silver for industrial applications. [Silver ETFs Thwart Gold Rivals]
SLV’s technical outlook could be just as encouraging as the $7.3 billion ETF is showing early signs of a cup and handle, according to TradeWithPete.com. Key resistance will be SLV’s 200-day moving average around $24. A move through there could carry the ETF to and past Bank of America’s expected silver price.
Investors have pulled almost $42 million from SLV since the start of October, but the fund has not seen outflows on a year-to-date basis even as investors have pulled nearly $23 billion from the two largest gold ETFs.
Chart Courtesy TradeWithPete.com
Tom Lydon’s clients own shares of SLV.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.