Last week, I noted that silver speculators returned to “maximum bullishness” but warned…
“Just like the plunge on March 2nd, the key for SLV is the follow-through. On March 3rd, a small relief rally fell short of 200DMA resistance; two days later SLV gapped down on its way to a 50DMA breakdown. I am guessing that SLV could at least retest the March low in the current move.”
As a result of my wariness, I noted that my typical response to this setup would be to implement a pairs trade going long SPDR Gold Shares (GLD) and short iShares Silver Trust (SLV). However, since I never short gold or silver, I stood pat with my core GLD and SLV shares and my shorter-term GLD trade with call options.
In the subsequent week, silver speculators received major vindication with very bullish follow-through. SLV bounced neatly off support at its 20 and 50-day moving averages (DMAs), invalidated the bearish engulfing pattern that made me wary, AND, perhaps most importantly, definitively cleared the hurdle of its election-day close. The breakout for SLV to a new 5-month high, definitely leaves its post-election malaise in the rear-view mirror (yes, yet one more effect of President Trump’s election has completely reversed).
The iShares Silver Trust broke out above its election-day close and invalidated a previous bearish signal.
Source: FreeStockCharts.com
Along with this breakout, silver speculators set a new level of maximum bullishness. Net futures contracts set a new record high (counting from 2008).
Counting from 2008, silver speculators accumulated a new record high net long position.
Source: Oanda’s CFTC’s Commitments of Traders
With SLV breaking out above its 200DMA, cleanly clearing its post-election losses, and receiving full support from silver speculators, I am now inclined to trade around my core SLV position with call options or new shares in silver miners (Pan American Silver Corp. (PAAS) remains my favorite silver mining play). Alongside my refreshed bullishness on SLV, I am now even more bullish on GLD. I had to lock in my profits on my GLD call options because they were a week away from expiration, but I am looking to reload. Starting next week, I will start in on SLV call options and look to buy dips in SLV and GLD down to their respective 200DMA support lines.
