Since mid-January, silver has been trading in an inverse relationship to stocks. The reason is textbook: among its other uses, the white precious metal is considered a safe haven asset.
Thus, when investor risk appetite increases, haven assets are sold off and risk assets such as equities are in demand. Alternatively, when uncertainties abound, investors rotate back into safe havens.
However, silver also maintains a negative correlation with interest rates. The higher the dollar's payout, the less attractive non-yielding commodities, even those labeled precious such as silver and gold, become. For silver currently there are a few unknowns pressuring its next moves—which way the stock market will turn and how fast the Fed's path to higher interest rates could proceed, plus of course, how investors will react in each case.
The same negative stock correlation discussed above is visible even via the narrow timeframe offered by the four-hour chart below. And for now, those technicals suggest silver could be headed lower.
The chart shows an H&S top had developed, followed by a return move that tested the neckline's resistance and turned lower. When silver tracks lower than its previous trough, it will signal that the bears are in charge of the current move.
Trading Strategies
Conservative traders should wait for the price to fall below $24.61, the previous trough, then sell on the following stalling rally, which may coincide with the top of the falling channel.
Moderate traders would wait for the same move as their conservative counterparts but enter a short position upon the corrective rally without waiting for it to demonstrate resistance.
Aggressive traders could short immediately, according to a plan that incorporates their personal risk and financial tolerance and to which they are committed. Here is a generic example:
Trade Sample
- Entry: $25.20
- Stop-Loss: $25.30
- Risk: $0.10
- Target:$24.20
- Reward: $1.00
- Risk-Reward Ratio: 1:10
Author's Note: This is just an example. The actual analysis is in the body of the text and it's our interpretation of the principles of technical analysis. We are not saying that we know what will happen next, only what might be likely to occur if our understanding of the situation is correct. Trading is about acting on the weight of available evidence, without knowing or expecting a particular follow-through. Rather, it's the hope that trading consistently will help one get on the side of statistics. Operating with a trading plan that meets one's personal needs further boosts the likelihood of success.
Until one learns how to write a personal trading plan that meets one's timing, budgetary and temperamental specifications, follow our samples, but for educational purposes, not necessarily for profit. Otherwise you'll end up with neither—guaranteed and there's no money back.