PPR - The Portfolio Simulator Mulls over the Silver Situation

Published : May 3 2011 at 18:30 ET

The Portfolio Simulator sold its position in the SLV two Mondays ago on the climax top type of move near the $50 price level on spot silver, and since then SLV has pulled down 16% from the peak as of today's (May 3rd) close. Is there a re-entry point?

The critical driver of the precious metals will continue to be a weak dollar, thus there is still potential for silver and gold to continue moving to new highs over time. For now the run in silver is done, but there are some things to watch for with respect to a potential entry point, and these center around what gold does. The chart of the SLV below shows where the ETF would need to go (highlighted area) for a roughly 20% pullback off the price peaks of last week.

Generally, if silver peaks out in the short-term and gold continues higher, eventually gold will drag silver back up with it, thus it may be a good strategy to buy into a 20% pullback in the SLV down into the 38.50 price area, more or less, IF the GLD exhibits strength. Notice from the second chart, GLD's daily chart, that the GLD is holding the 10-day moving average and is not pulling off nearly as much as silver. If the GLD holds up here or moves higher, it is likely that it will drag the SLV with it. Thus, if the GLD is seen to hold its ground as the SLV moves lower in the next day or two, the SLV could become buyable as long as the GLD remains constructive. This is a little tricky, but The Portfolio Simulator will act if this set-up occurs and it appears actionable, so stay tuned.

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