Silver's Short-Term Move: Southbound

Silver in the last five weeks has picked up just better than $2/ounce lifting price to its 50-day MA. That pivot point identified by the light blue line has served as a magnet for the last week as trade has been teetering on both sides of that level. For regular followers you should gather that short term I am anticipating silver prices to trade south and I’ve advised clients to keep their powder dry and buy at a lower level given the opportunity. In the chart elow you can see the triangle formation I drew out and before prices reach the apex we should see a breakout higher or lower that should set the tone for the immediate leg. To be clear on March futures, a trade above $32 or below $31.25 and this should happen into next week.

The Play
Though I’d prefer to be a buyer from lower levels, for those attempting to capitalize on a bearish trade, here’s my trade idea: Back ratio spreads; for instance selling just out of the money puts then buying multiple further out of the money puts in the same months. I think on a breakdown May futures could trade $1.50-$2 lower in the next few weeks. By implementing this type of a trade you are able to exploit a volatile trade lower, allowing flexibility with multiple legs and on a move higher traders should not feel as much pain as an outright short futures. When weighing if I should trade futures, I thought you would need to risk a trade above the 100-day MA, in May currently $1 above current prices and I see the options trade allowing just a little less exposure.

Eye On The USD
The risk-off trade has yet to happen, which I believe is in the near future as metals will get hit in my opinion. I think money flows out of equities, which eventually will flow back into commodities and if these occur and the timing is right, metal traders should get an opportunity to buy both gold and silver from lower levels. I also want to point out that as the U.S. dollar appreciates -- though it may be flash in the pan -- it will likely pressure metals short term. For what it’s worth, the greenback is above its 50-day MA for the first time in four weeks as of this post. I see the next upside resistance in the dollar about 1% above current trade.