Potential Inflection in SLV: Price Action and Options

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Silver moves higher on heavy volume.

Christopher-LemieuxSMBullion.Directory precious metals analysis 6 December, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Twitter @Lemieux_26

The iShares Silver Trust (SLV) has been beaten bad, falling over 13 percent prior to Friday’s rally. On a combination of low inflation and low growth, silver has fallen long out of favor with Wall Street (but remains a small investor’s favorite). But, there are a couple factors that could signal, at least in the short-term, SLV may see some upside.

First, price action was able to trend along support at $13.35/30 that was created back on August 26, following the Black Monday event in equities; and it also represents a solid line of support on the weekly chart. Secondarily, the three percent move off of support was coupled will back-to-back sessions of heavy positive volume.

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There is a daily bullish convergence in the +/- DMI, which suggests that positive price action is taken favor. The non-directional biased ADX is slopping downward, too, which may mean the downward trend could be taking a pause.

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Even with some positive technicals, Friday’s move was fairly big and can tend to muddy near-term projections. Bulls still have several key resistance levels ahead of them, including dynamic resistance of both the 50- and 72-day EMA. However, if SLV can close above $14.10, traders could see a near-term boost to $14.42 and, potentially, $14.75.

There is some interesting options action, too. According to Nasdaq, there was particular options of interest in the January 2016 chain. The put contract at the $13.00 strike has a current bid of $.32, so if a trader was looking to sell-to-open, there would commit to purchasing SLV at $13.00/share but also receive the $.32 premium. This would then reduce their cost basis to $12.68. Not bad considering that it closed Friday at $13.87.

Precious metals received a boost Friday, after ECB President Mario Draghi promised there were “no limits” to the implementation of QE tools in the wayward attempt to spur growth via long-term monetary intervention.

If SLV reverses course, a downside follow-up will be offered as this only examines potential upside. Stay tuned.

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