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We're Back Into Silver Stocks

By Matt Badiali, editor, S&A Junior Resource Trader
Wednesday, June 1, 2011

Silver stocks are back on track.
Last week, I gave you a list of my favorite silver producers. I wasn't ready to buy yet. It wasn't clear silver was ready to stop falling. But today, I think it's time to get back into silver stocks.
In my S&A Junior Resource Trader service, we use simple "guideposts" to tell us when to buy resource stocks. The principal guidepost is the 120-day moving average (DMA). A moving average collects prices from a period of time, then averages them out. It shows a "smoothed" version of the price trend.
There's nothing magical about using a 120-DMA, it's simply a good middle of the road gauge of a commodity's trend. And it allows us "get in" relatively early in an emerging price trend, while avoiding a lot of "whipsaws."
When a commodity is below its 120-DMA, we say it is not in a bull market. Since the underlying trend is such an important part of a commodity stock's returns, we don't buy stocks when their underlying commodity is trending lower.
When a commodity is above its 120-DMA, we say it's in a bull market. And we look to buy the best stocks in the sector.
So let's apply that to silver. Are we ready to buy here? Well, take a look at this chart:
This chart shows the silver price (in black) and silver's 120-DMA (in blue). As you can see, silver's recent fall was severe. The price dropped around 30%... but it didn't fall below its 120-DMA.
Silver is still in a bull market. And since it bounced so well off its 120-DMA, I'm ready to buy again.
One of the first places to start would be Silver Wheaton. As I told you last week, Silver Wheaton doesn't operate mines. It invests in early-stage mining projects in return for a slice of future profits when a project starts producing. As silver prices soar, so do its profits.
Silver Wheaton took a beating from silver's decline. It fell 29%. But it looks like it has found a bottom and is climbing higher:
If silver continues to hold above its 120-DMA, Silver Wheaton could test its highs again. That's a 30% gain from here.
Silver's drop inspired a lot of queasy headlines. But it looks like it was just a normal bull-market correction.
It's time to buy silver stocks again.
Good investing,
Matt Badiali

Further Reading:

"Silver Wheaton shares could be worth $80 in 2015," Steve Sjuggerud writes. "And that's assuming silver goes nowhere." Read why he's more bullish on the royalty company than ever before here: Up 40% in Seven Weeks, Still Room to Double.
Last week, Matt told Growth Stock Wire readers about his silver stock shopping list… the stocks he's keeping an eye on until silver stabilizes. "Should this strength prove to be the final bottom in this recent correction," he writes, "these are the stocks you should consider buying." Get the full story here: My Three Favorite Silver Producers.

In The Daily Crux
Market Notes
Nokia warns that competition is killing sales... shares down more than 30% so far in 2011.
Gold miner fund GDX touches three-week high.
Blackberry maker Research in Motion sinks to fresh nine-month low.
Pipeline giant Enbridge breaks out to fresh all-time high.
Market Watch
Symbol Price
S&P 500 1345.20 +1.1% +23.5%
Oil (USO) 40.50 +2.0% +19.0%
Gold (GLD) 149.64 0.0% +25.9%
Silver (SLV) 37.60 +1.5% +108.5%
U.S. Dollar 74.93 +0.2% -13.7%
Euro 1.44 +0.8% +17.0%
Volatility (^VIX) 15.45 -3.3% -51.8%
Gold Stocks (^HUI) 552.55 +0.4% +21.8%
10-Year Yield 3.05 -0.3% -7.6%

World ETFs
Symbol Price
S. Korea (EWY) 66.01 +1.7% +50.5%
Taiwan (EWT) 15.76 +2.9% +41.4%
S. Africa (EZA) 72.88 +2.9% +32.3%
Singapore (EWS) 14.20 +1.3% +32.0%
Canada (EWC) 32.90 +1.0% +27.1%
Russia (TRF) 21.85 +1.2% +27.0%
USA (SPY) 134.90 +1.0% +25.8%
Lat.America (ILF) 52.38 +0.6% +25.3%
Israel (ISL) 17.28 -0.1% +24.0%
China (FXI) 45.37 +2.7% +17.0%
India (IFN) 29.79 +1.8% +15.5%
Japan (EWJ) 10.27 +1.8% +8.7%

Sector ETFs
Symbol Price
Oil Service (OIH) 153.43 +0.4% +58.1%
Basic Mat (IYM) 80.86 +1.0% +40.6%
Internet (HHH) 76.00 +1.7% +40.1%
Semis (PSI) 17.90 +1.1% +35.7%
Telecom (IYZ) 25.65 +0.2% +35.3%
Industrials (IYJ) 71.12 +1.1% +30.7%
Real Estate (IYR) 62.80 +1.8% +30.4%
Biotech (PBE) 23.26 +0.4% +29.2%
Big Tech (QQQQ) 58.36 +1.6% +29.0%
Health Care (IYH) 75.15 +1.2% +28.1%
Transportation (IYT) 99.19 +1.1% +27.6%
Big Pharma (PPH) 72.26 +1.4% +27.5%
Consumer Svcs (IYC) 73.66 +0.5% +25.0%
Retail (PMR) 21.62 +0.8% +24.1%
Media (PBS) 15.49 +0.8% +23.6%
Water (PHO) 19.90 +1.2% +23.0%
Software (PSJ) 26.81 +1.2% +22.9%
Utilities (XLU) 33.87 +0.7% +22.9%
Insurance (PIC) 16.88 +0.8% +17.2%
Defense (PPA) 20.23 +1.2% +16.7%
Construction (PKB) 13.69 +1.5% +14.4%
Financials (IYF) 58.07 +1.0% +11.0%
Alt. Energy (PBW) 9.55 +2.4% +9.0%
Nanotech (PXN) 9.21 +1.3% +0.4%

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