Is Silver About to Explode Higher?

Schaeffer's Investment Research
  NOV 02, 2012 9:50 AM

Silver Wheaton, Coeur D'Alene Mines, and Hecla Mining look good, but they'll eventually need actual silver to move higher.

 


Saw a good tweet on Twitter this morning. It went something like, “There is no bear side, no bull side, just the right side.”  Awesome quote, and so accurate, as it rang true with what we’re seeing now.  Price action on the major averages have been bearish and looks weak, yet, if you break it down by the individual names out there, there have been a lot of opportunities for some nice bullish plays.

I noted on 9/18 that I had some near-term concerns.  Turns out, that was within 24 hours of a pretty major peak.  Then in early October I noted how Apple (NASDAQ:APPL)  looked like it had peaked and a surge in buying climaxes was another warning for more pain to come.  Well, we just had the worst October in four years, and to be honest, price action still concerns me.  Now the one major positive is that sentiment is getting downright negative, so that is always a positive from a contrarian point of view.  Still, price action is what matters, and to me, playing the best charts is the way to consistently be profitable.

I continue to think silver stocks look nice here.  I’ve been saying on Twitter for a few weeks now that silver stocks looked good.  We’ve also been playing them in some of our Alert Services here at Schaeffer’s over the past few weeks.   Now they haven’t exactly exploded higher here, but to me, they still look very nice across the board.  When several names from a group add up and look good, I always think that helps the odds of higher prices across the board.

Back on 10/19 I noted how Silver Wheaton (NYSE:SLW) looked good, and it's up since then in a rather weak market.  SLW still looks good for an eventual breakout here.



I also like Coeur D’Alene Mines (NYSE:CDE) a lot here.  This one has already broken out and looks ripe to run a few points.



Hecla Mining (NYSE:HL) continues to coil and should eventually resolve much higher.



So the stocks look nice, but they’ll eventually need actual silver to move higher. Now here’s where things get interesting.  Turning to the iShares Silver Trust ETF (NYSEARCA:SLV), it formed a doji on a weekly chart last week.  Dojis are a sign of indecision, and in a lot of cases can signal a change in overall trend.  They are found using candlestick charting and look like a plus sign.  Then throw in the fact that it happened on a weekly chart, and I think it adds more credibility.  Below is SLV.



What I like about SLV here is that ti's had some significant bottoms and tops before when using dojis.  In fact, one nailed the major April peak last year.  Could last week have been a major low for SLV?  My take is yes, given the action in the individual names.  I think the stocks will lead the metal higher and are predicting higher prices for SLV.

Lastly, we’ve noticed that short interest on SLV can predict its trend.  Short interest soared last year into that major peak, then dropped right along with the price.  Lately, short interest has been trying to move higher.  Should we also see a jump in SLV short interest, that could be the final piece to the puzzle -- SLV (and probably the silver stocks) are due for a big move higher.  

(Chart below courtesy of Thomson Reuters.)


Click to enlarge

This article by Ryan Detrick was originally published on Schaeffer's Investment Research.

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