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Get Ready to Buy Silver

By Jeff Clark
Tuesday, September 27, 2011

Precious metals got clubbed last week. Platinum fell 7%. Gold dropped 10%. Copper got whacked for almost 17%. And silver lost a whopping 26%.
 
The bloodbath continued yesterday as silver dropped another $3 per ounce at one point. It closed the day at $29.98 per ounce – its lowest price since February.
 
And now, it's just about time to buy.
 
The last time we looked at silver was back in April, just before the metal peaked at nearly $50 per ounce. We were cautious back then. The silver trade was just too popular. Silver was trading 50% above its 200-day moving average (DMA) – an extreme condition that led to sharp corrections in 2006 and 2008.
 
We cautioned that anyone looking to buy silver in April would be better off waiting a few months. Today, silver is down 38% from its peak, and we're looking at nearly the exact opposite condition we saw in April.
 
Here's an updated chart... 
 
 
Silver has gone from being 50% above its 200-DMA in April to 20% below the line today. It has gone from popular and overbought to shunned and oversold.
 
The conditions that had us cautious on the metal in April have reversed. So I'm enticed by silver today.
 
As you can tell from the chart, silver has price support at about $27 per ounce – its low for 2011. It has even stronger support just below that at $25. Either price would be a good level to start buying.
 
Of course, it's hard to buy any investment after watching it fall 26% in one week. But taking advantage of extreme conditions is how you make money in precious metals.
 
Investors were rushing in to buy silver in April when the metal was severely overbought. They were wrong back then. Today, those same investors are panicking and selling the metal into oversold conditions. Somehow, I suspect they'll be wrong again.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

"As a general rule, these stocks have almost always been bad investments," Jeff writes. "But if the price of oil keeps falling, they may make for a good trade." Get the details here: The One Industry Poised to Profit Most from Lower Oil Prices.
 
Back in April, when it seemed like even taxi drivers were buying gold, Jeff grew wary of the precious metal. "Everybody's talking about it, and everybody wants a piece of it," he wrote. "Be careful. While it's nice to hang out with the popular kids, it's best to stay out of the way when the spit balls start flying." Read more here: The Curse of the Silver Trade.

In The Daily Crux
Market Notes
Euro sinks to fresh seven-month low.
 
Plenty of large-cap stocks are avoiding market weakness... Microsoft, Coca-Cola, Intel, and McDonald's are all up over the last three months.
 
Copper is down more than 30% off its February highs... and down 27% in the past two months.
 
"HCIT" leader Cerner breaks out to a new all-time high.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1136.43 +0.6% +1.0%
Oil (USO) 31.47 +1.2% -5.8%
Gold (GLD) 157.58 -1.4% +24.4%
Silver (SLV) 29.77 -0.7% +41.7%
U.S. Dollar 78.26 +0.7% -2.3%
Euro 1.35 +0.2% +1.4%
Volatility (^VIX) 39.02 -5.4% +79.7%
Gold Stocks (^HUI) 547.33 +2.0% +8.4%
10-Year Yield 1.90 +5.0% -27.2%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 116.24 +2.4% +3.3%
Japan (EWJ) 9.39 +0.5% -3.4%
Canada (EWC) 26.03 +2.4% -4.7%
S. Africa (EZA) 59.64 +3.7% -6.2%
Taiwan (EWT) 11.94 -1.4% -9.2%
S. Korea (EWY) 47.24 +1.2% -9.8%
Israel (ISL) 14.06 +0.8% -10.3%
Singapore (EWS) 11.37 +0.1% -10.5%
Lat.America (ILF) 40.42 +2.3% -15.2%
Russia (TRF) 14.81 -2.2% -23.3%
China (FXI) 32.13 -0.4% -23.5%
India (IFN) 23.99 0.0% -27.1%

Sector ETFs
Symbol Price
Change
52-Wk
Internet (HHH) 79.45 +1.9% +23.6%
Retail (PMR) 19.96 +3.0% +16.2%
Utilities (XLU) 33.68 +0.8% +11.7%
Big Tech (QQQQ) 54.78 +1.2% +11.1%
Consumer Svcs (IYC) 66.90 +2.2% +10.5%
Health Care (IYH) 65.92 +1.4% +5.5%
Big Pharma (PPH) 64.93 +1.4% +4.0%
Oil Service (OIH) 113.01 +3.8% +3.3%
Media (PBS) 12.35 +2.4% +1.3%
Real Estate (IYR) 51.94 +1.3% +0.9%
Semis (PSI) 12.78 -0.2% -0.7%
Industrials (IYJ) 56.36 +2.5% -1.3%
Software (PSJ) 22.32 +2.5% -1.4%
Telecom (IYZ) 20.67 +1.4% -2.0%
Defense (PPA) 16.59 +2.5% -2.4%
Biotech (PBE) 18.82 +0.8% -3.0%
Transportation (IYT) 77.49 +2.3% -3.4%
Water (PHO) 15.50 +2.5% -4.9%
Basic Mat (IYM) 60.51 +3.3% -5.2%
Construction (PKB) 10.18 +2.1% -8.9%
Financials (IYF) 45.48 +3.6% -12.4%
Insurance (PIC) 12.81 +0.8% -14.4%
Nanotech (PXN) 6.45 -0.6% -27.7%
Alt. Energy (PBW) 5.93 +0.3% -37.4%

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