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How to Profit on a Silver Breakout

By Jeff Clark
Thursday, January 23, 2014

Silver looks too good to ignore.
 
The last time we looked at silver in late October, the price had just rallied above its 50-day moving average (DMA). It seemed like it was the start of a new bullish move for the metal. But that bullish development reversed quickly. Silver dropped back down and retested its low near $19 an ounce.
 
But today, the bullish setup on the chart looks even more attractive than it did in October. And the last time we had a setup like this, the metal popped 19% higher in just a few weeks.
 
Take a look at this chart of silver...
 
price of silver 2013-2014
 
Silver has been in a low-level consolidation pattern for the past seven weeks – bouncing back and forth between $19 and $20.50 an ounce. During that time, the 50-DMA fell, and the nine-day exponential moving average (EMA) curled up. On Tuesday, the nine-day EMA crossed over the 50-DMA. This is a bullish setup and should lead to higher prices on the chart.
 
The last time we had a bullish cross on the silver chart was in August. Back then, silver popped 19% higher in just a few weeks.
 
Notice also the strong positive divergence on the MACD momentum indicator. That supports the idea of a silver rally starting soon.
 
At a minimum, silver should be able to rally up to its October high of $23 an ounce. But if this rally plays out the way the August rally did, $25 an ounce is a reasonable upside target.
 
With silver trading near its 52-week low, traders can buy the metal here and keep a tight stop at about $19. So the risk is just $0.84 per ounce from yesterday's closing price. The upside reward could be as much as $5 per ounce.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

If you're thinking of adding silver to your portfolio, find out what you need to know to trade the precious metal in this must-read interview. You'll learn three factors behind a bullish case for silver... just how high it could go... and how to buy and hold it.
 
In today's DailyWealth, Matt Badiali says China's pollution problem is about to spark a rally in two other precious metals. "2014 will see a major bull market in these air-cleaning metals," Matt writes. Get all the details here: How to Profit from China's Record Auto Sales.

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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1844.86 +0.1% +23.6%
Oil (USO) 34.56 +1.7% -1.3%
Gold (GLD) 119.19 -0.4% -27.2%
Silver (SLV) 19.03 -0.7% -38.9%
U.S. Dollar 81.20 +0.1% +1.7%
Euro 1.35 -0.4% +1.4%
Volatility (^VIX) 12.84 -0.2% +3.3%
Gold Stocks (^HUI) 213.91 -2.8% -50.9%
10-Year Yield 2.86 +1.1% +55.4%

World ETFs
Symbol Price
Change
52-Wk
Israel (ISL) 16.95 +0.1% +26.7%
USA (SPY) 184.30 +0.1% +26.1%
Japan (EWJ) 12.10 +0.3% +25.3%
Taiwan (EWT) 14.17 +0.8% +7.1%
Russia (TRF) 14.91 -0.3% -0.9%
Canada (EWC) 28.70 -0.7% -1.0%
S. Korea (EWY) 60.81 +0.5% -1.0%
India (IFN) 20.15 -0.1% -3.6%
Singapore (EWS) 12.68 +0.6% -5.1%
S. Africa (EZA) 62.10 +1.0% -5.1%
China (FXI) 36.66 +2.4% -9.4%
Lat.America (ILF) 35.13 +1.0% -20.4%

Sector ETFs
Symbol Price
Change
52-Wk
Biotech (PBE) 42.72 +0.3% +72.9%
Alt. Energy (PBW) 6.93 +1.0% +61.0%
Defense (PPA) 32.19 +1.5% +49.9%
Media (PBS) 25.88 +1.0% +49.3%
Health Care (IYH) 121.42 +0.1% +38.7%
Big Tech (QQQQ) 88.78 +0.3% +33.7%
Transportation (IYT) 135.16 +1.1% +33.2%
Industrials (IYJ) 101.07 +0.3% +32.1%
Software (PSJ) 37.32 +1.0% +32.1%
Consumer Svcs (IYC) 119.56 +0.4% +31.9%
Semis (PSI) 19.08 +1.6% +28.4%
Financials (IYF) 80.86 +0.3% +27.6%
Nanotech (PXN) 8.06 +0.5% +26.6%
Retail (PMR) 32.46 -0.4% +25.8%
Telecom (IYZ) 29.75 +0.2% +23.8%
Construction (PKB) 22.50 -0.2% +21.9%
Water (PHO) 26.38 +0.3% +20.4%
Insurance (PIC) 19.01 +0.1% +18.3%
Basic Mat (IYM) 80.65 -0.8% +13.1%
Utilities (XLU) 38.52 +0.1% +11.3%
Real Estate (IYR) 65.30 +0.3% +0.0%

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