Since bottoming on 6/28, silver futures have appreciated 37%, all in just two months. Whenever a commodity moves that much -- whether it's higher or lower -- it should be known that such velocity is not sustainable.
Resistance
Futures are running into resistance at the 38.2% Fibonacci level, just under $25/ounce. Notice that futures failed at these same levels back in April.
The USD And Metals
Look for a trade back to the 100-day MA (red line) 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. For more 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 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.
Past performance is not indicative of future results.