Since bottoming on 6/28 silver futures have appreciated 37% and this happened in two months time. Whenever a commodity moves that much whether it is higher or lower it should be recognized as that velocity is not sustainable. Futures are running into resistance at the 38.2% Fibonacci level just under $25/ounce. One should notice that futures failed at these same levels in April. Past performance is not indicative of future results.
A trade back to the 100 day MA (red line) is my forecast in the coming weeks. Stochastics are extremely over bought and though the lows may be in I do think we get some back and fill before additional upside is seen. The fact that the US dollar is catching a bid and trading above its 20 day MA could also act as a ball and chain. A 1.5-2.5% appreciation in the greenback in the coming weeks should coincide with a correction in the metals. Continued instability in the Middle East could buoy prices short term but as the title suggests markets do not move in a straight line. In order for further appreciation to play out a healthy correction is needed.
After a near $7/ounce appreciation a $2.50- $4 correction seems reasonable. A trade back to the 100 day MA would represent a correction of $3 while a move to the 50 day MA would represent $4.50.
Three Silver trade ideas:
- Short mini-futures in December
- Short standard futures in December and sell a put 1:1 as a hedge. A $23 put can be sold currently for $5,100. The current delta is 23%.
- Bear put spread…see the chart below of a December $23/20 bear put spread. It would have a positive delta of 20%. At $3 wide this represents a $15,000 spread. This spread currently costs $3,500.
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