Is the Silver ETF Showing Technical Weakness?
Precious metals have been facing a modest decline in prices as of late despite the monetary easing measures of the Federal Reserve to stir up growth in the economy. However, the icing on the cake for the precious metal bears was the minutes of the recently concluded Fed meeting.
In that meeting, many members expressed discomfort in the event of further monetary easing as they were concerned about the expanding Fed balance sheet. Therefore it should not be surprising if we see a premature end (or even a deceleration) in the asset purchase program by the Federal Reserve later this year (read Mining ETFs Surge on Fed Decision).
If it happens we could very well see a substantial drop in the prices of precious metals which in turn received a solid boost on account of the announcement of Quantitative Easing 3 (QE3) last year. Nevertheless a closer look at the chart of the iShares Silver ETF (SLV) reveals that it is exhibiting near term weakness.
Silver ETF prices rocketed in mid September last year after the announcement of QE3. However, since then it has been struggling to maintain momentum. SLV has tried to breach the level of $34 amidst a bull run in October last year but failed to do so.
Furthermore, after rebounding off the 200 DMA line (green) which acted as a support level near $30, it again went for the $34 level, but this time it only managed to make a lower high (read Gold ETFs Make 2012 Another Positive Year).
This has resulted in a double top pattern for the ETF which is characterized by a bearish breakout of the $30 support level. This level will now act as the new immediate resistance for the ETF.
Also, a death cross has been formed where the 50 DMA line (blue) slipped below the 100 DMA line (red) at the start of the new year. Furthermore the ETF witnessed a rangebound and choppy trading, apart from the New Year rally on January 2nd, since the $30 support breakout. This hints towards a possible dip in prices in the subsequent trading sessions (see more in the Zacks ETF Center).
Speaking of trends, SLV is seen in a near term downtrend as it is trading below the 50, 100 and 200 DMA lines. Also, the most responsive of the moving average lines, the 50 DMA line is downward sloping. However, the near term downside may be limited for the ETF as the immediate support level is seen at the $26 level.
Nevertheless, it is prudent to note that this is just some short term weakness by the silver ETF, as the long term outlook for the white metal is positive. This is mainly because of its vast industrial and consumption use which has picked up of late fuelled by a modest recovery in the global economic activities (see Focus on Earnings with These ETFs).
SLV current has a Zacks Rank of 1 or ‘Strong Buy’.
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Read the analyst report on SIVR
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