iShares Silver Trust (NYSE:SLV) – Silver is quite volatile and provides ample opportunities for trading. This silver ETF has enjoyed a rally of better than 500% from the 2008 lows to the April 2011 highs.
The weekly chart of the September 2011 silver futures contract shows the metal falling hard off the highs near $50, but has since gotten back on its feet.
On the daily chart looking back to March 2010, note that the September 2011 silver futures contract has kept its most recent major uptrend starting in August 2010 (blue line). At the same time, silver also found a recent low at the 50% retracement level from the August 2010 to April 2011 rally.
On the close-up daily chart looking back to March, note the big narrowing trading wedge that has formed since the large sell-off in early May. On Friday, July 19, silver broke out of this wedge on decent volume.
That three charts shown here are of the September 2011 silver futures contract; however, the chart of SLV is similar.
The trade I see setting up here is to go long SLV near $41.50. Stops can be set around $38 with a profit target at $48.
A cautionary note: Gold has had a massive rally in recent weeks. If and when it should pull back some, I would also envision the same happening for silver. Given the long-term uptrend in silver, should you get stopped out on this trade, wait for more consolidation and another setup. That’s how this business works. It’s not about hitting a home run every time; it’s about finding high-probability setups and managing your risk.