Silver has Topped – I Bet You $1 Million

• Posted by Greg Harmon
• on April 11th, 2011

Someone made a $1 Million dollar bet that Silver would fall 38% in the next 3 months, buying 100,000 July 25 Strike puts for 10 cents today in the Silver ETF,$SLV. Add that to the Barron’s article over the weekend, and everybody, and I do mean everybody, is trying to call the top in Silver and Silver stocks. The chatter only grew louder today as the SLV printed its highest volume ever as it fell almost 3% from the new intraday high. Now I believe that markets cannot go up forever and a correction or consolidation is healthy. So I am making my own call.

We Have Hit a Top in People Calling a Top in Silver

Now that, that is out of the way what are the charts saying about the Silver ETF.

SLV Monthly

Starting at the high level, the monthly chart above shows that SLV was in an uptrending channel from 2004 through to July 2008. At that point it fell out of the channel, tested it in late 2009 and just re-entered the extended channel in October 2010. It is now testing the top of the channel as April is approaching mid month. On this timescale, SLV looks very positive going forward. The Simple Moving Averages (SMA) are all sloping higher and the Relative Strength Index (RSI) and Moving Average Convergence Divergence(MACD) indicator are both strong, supporting more upside. The RSI is getting overbought, but that can be worked off through consolidation as well as a pullback. No reason for panic here. What about the Weekly timeframe?

SLV Weekly

On the weekly timeframe SLV has gone through a series of steps higher since mid 2008. The first step of $11 was followed by a step of $12 and then the most recent step of $14, if today’s pullback continues. This chart also has some very bullish indications. The RSI is firmly in bullish territory although getting overbought. The MACD is positive and rising and the SMA’s are all sloping higher. Along the steps higher the 20 week SMA has been support for any pullbacks, so SLV could pullback as far as 31.60 and still continue the uptrend from the perspective of this timeframe, but not that the most recent pullback was much more shallow that that. A drop of another 20% is a long way though, what does the daily chart say about the details in between.

SLV Daily

The daily chart above conforms very well to the Andrew’s Pitchfork analysis. Currently SLV is riding the Lower Median Line (LML) of the purple pitchfork higher, but it printed a bearish engulfing candle today. If that candle is confirmed by a move lower tomorrow then Median Line (ML) of the blue pitchfork looks to provide support. This would come at 37.57 on a straight drop lower. If it were to get below that then the Upper Median Line (UML) of the orange pitchfork would give support at 36.26. Below that the LML of the blue pitchfork followed by the ML of the orange and finally the LML of the orange pitchfork before reaching 200 day SMA at 25.54. The point of all these pitchforks is that there are many support levels that need to be broken before a 40% correction could occur. Oh, by the way, this daily chart is also bullish with 3 of the first four median lines resulting in a rising price trend, the SMA’s sloping higher and the RSI and MACD strong.

So is the top in for SLV? The charts suggest that, no, it is not. They do allow for a pullback within the uptrend, but they do not suggest that a top is in or that a reversal is imminent. Until they do keep your bias to the upside.

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