The Levels to Be Watching In Silver

While many point to the Federal Reserve as the tide that raises all ships, the boats carrying commodities have all but sank over the last couple of years. Silver ($SLV) has fallen nearly 30% since it’s 2014 high alone and made a series of lower highs and lower lows. It’s hard to argue against the notion that the Silver is in a bear market as each rally gets faded. We can also see signs of this bear market in momentum, with each march higher hitting a brick wall at the upper end of a bearish range.

Below is a weekly chart of the iShares Silver Trust ETF ($SLV) going back to late 2012. After a large drop in 2012 and 2013 silver began to consolidate at created support near $18. However, each rally was unable to get back above the 50-week Moving Average and momentum began defining the range for which it would eventually remain for the coming year. After multiple tests of the support at $18, price eventually broke through and tagged $15 for this ETF. As with many levels of support, once it breaks it often becomes resistance. Which is what we can see took place at the start of this year when Silver bulls tried to gain the majority. But they were unable to get the popular opinion and price failed at $18 and again was unable to break the 50-week MA.

Now with price re-testing $15 for $SLV we have a bullish divergence in the Relative Strength Index (RSI). We saw a similar divergence in June of last year before small rallies took place but ultimately failed. With the RSI making a higher low as price tests a prior low, this a potentially positive sign that price may begin to rally. What’s important to understand with this chart is the defined level of resistance in momentum. The bearish range that the RSI is in has put a quick end to any attempt to see price appreciate and we’ve yet to see the indicator break above this level yet.

Going forward I’ll be watching if the RSI can get materially above 50 and if price can once again break above $18 as well as its 50-week MA. This will likely not be an easy feat for Silver bulls to take on, but it’s important to know where ‘price memory’ is and the levels to keep an eye on.

SilverA second chart of Silver I want to take look at involves Sentiment. The chart below comes from SentimenTrader.com and is a proprietary mix of varies sets of sentiment-related data. As Silver consolidates near $15 I find it interesting to see sentiment begin to put in a series of higher lows from what is deemed an “excessive pessimism” level. Each test of this level in price has been accompanied by, what appears to be, less and less bearish sentiment. This may help give some self-esteem to the bulls as their camp begins to grow in attendance.

Prior rallies from $15 in $SLV have seen sentiment stop out around 60, if we do see price rally I’ll be watching to see if sentiment can break above these two prior highs as a possible sign that a shift in taking place in the Silver market.

Silver Sentiment

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

It’s Now Cheaper to Buy Oil Than Lemonade

It’s hard to ignore the massive decline in the price of a barrel of oil. The last few weeks have seen crude prices tumble back to their January lows of $44. The faint idea of black gold returning to a bull market after the 20% rally has turned from a dream into just a fantasy.

As the snow melts across the Midwest and East Coast and schools closed for Spring Break, the warm weather of summer seems to be quickly approaching. A popular summer pastime for kids is setting up a lemonade stand and hawking  their homemade beverages to passersby. At this rate it may be more profitable for kids to trade in their lemons for oil.

An 82.5 ounce container of Country Time Lemonade can make (according to the label) 34 quarters of lemonade, which is 136 cups. Doing a quick search at Walmart.com shows that this container costs $9.44, making each cup cost about $0.07, not including the cost of water and the cup itself. When selling cups full of the cold drink for $0.50 or even a $1.00 each, the margins likely appear to be pretty attractive for those future CEOs.

But if kids begin to look at other commodities to pitch to their customers, oil may be an attractive option. According to businessdictionary.com, there are 42 gallons of oil per barrel, which comes to 672 cups of oil. With oil trading at $44 per barrel, that comes to $0.06 a cup. Now of course there are other costs associated with procuring an actual barrel of oil. For the purposes of this article, we’ll stick to just the raw materials.

But looking at the simple math, the profit margin for a budding entrepreneur to sell cups of oil rather than lemonade this summer beats out the powder juice substitute by about 17%!

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

 

The U.S. Equity Chart I’m Watching Right Now

Starting in late February I began to see some warning signs for the short-term movement in U.S. equities. On Feb. 23rd I wrote in my Technical Market Outlook, “While I think the current trend looks health the short-term price action appears to be stretched at the moment. Volatility ($VIX) momentum has been pushed down quite a bit. I wouldn’t be surprised if we see some bumps in the near future that could push the $VIX higher. We’ll see.” I also began tweeting some of the intraday/bearish charts I was seeing (here, here, and here). While the long-term price action in the S&P 500 still appears healthy (you can read more on this in the above mentioned Technical Market Outlook link) I still like to pay attention to the short-term price action as well.

Since then, volatility has risen about 20% and the S&P 500 has dropped a couple of percent, nothing major. But with this small period of weakness I want to show the U.S. equity chart I’m keeping an eye on that moves beyond just the intraday swings of the market.

Price
Below is a weekly chart of the S&P 500 ($SPX) going back to early 2012. Along with the $SPX I’ve included the 20-week (same as the often discussed 100-day) and the 50-week Moving Average. These Moving Averages have acted as support during prior dips in equities for the current up trend. As of the time of this writing, we are testing the 20-week right now. As price continues to make higher highs and higher lows, from a price action perspective things look fine and the trend is clearly up.

Momentum
Moving to momentum, I’ve included the Relative Strength Index (RSI) and the MACD indicators. Since 2012, the RSI has been in a bullish range as it moves from 40 to over 70. This is a good sign that buyers continue to move in and has helped define the ‘buyable dip’ theme that’s been taking place over the last several years. However, most recently, a bearish divergence has developed in both the RSI and the MACD momentum indicators. As price has trekked higher, momentum has begun making lower highs, which has typically preceded turning points.

If we do continue to see price move lower, taking the RSI and MACD with it, I’ll be watching to see if prior support in the Relative Strength Index is able to hold up and provide some relief for equity bulls. I will also be keeping a close eye on these longer-term Moving Averages (20- and 50-week) and see how price responds if (in the case of the 50-week) they do get tested.

In the meantime, I’ll respect the current up trend and the notion that breadth (not shown) has continued to confirm the the new highs in price which in my opinion should not be disregarded. But these are the levels I’m watching, we’ll see where price takes us.

S&P 500

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.