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Silver's Bull Run Nears Resistance

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Despite recent positive momentum in the most popular silver ETF, the longer-term technical setup is concerning.

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The bull parade continues on the equity front as investors have been hesitant to take profit even after Wall Street's massive run-up at the start of 2013. Commodities, on the other hand, have lagged behind across the board as improving confidence over the global recovery has prompted many to jump into riskier assets, with upbeat earnings results further driving equity inflows. While precious metals may continue to face headwinds as optimism takes its toll on the safe havens, industrial metals like silver could have brighter days ahead as a turnaround in the global economy implies growing demand for raw materials.

Chart Analysis

The most popular silver ETF, the iShares Silver Trust (NYSEARCA:SLV), started off the new year on shaky footing, sliding lower alongside other precious and industrial metals. However, SLV has been able to regain its footing in recent days as buyers stepped in almost immediately after the fund slipped underneath its 200-day moving average (yellow line). In fact, recent bullish momentum has carried SLV into positive territory for 2013 as this ETF has posted six consecutive "up days" after it resurfaced above $30 per share on January 14, 2012.


Click to enlarge

Although SLV's run-up may lure some traders to this corner of the metals market, the longer-term technical setup in this ETF is a bit concerning; since peaking at $34.08 per share on October 1, 2012, SLV has posted lower-lows and lower-highs while sliding down within a fairly well-defined trading channel (blue lines).

Given the longer-term downtrend at hand, we advise conservative traders to wait and observe SLV as it battles to settles above $32 per share before jumping in long.

Outlook

From a technical perspective, SLV still has room to run seeing as profit-taking pressures are likely to rise once it nears the $32 level -- assuming that the ongoing downward-channel pattern holds true, of course. If the bears show up earlier than expected, SLV could face profit-taking in the face of equity markets rallying; in terms of downside, this ETF has immediate support around $30 per share followed by the $29 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Editor's note: This article by Stoyan Bojinov was originally published on Commodity HQ.
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