Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.
My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row.
But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…
There is one commodity that has certainly kept a quiet profile lately… For over a year, silver’s barely been in the news.
That’s all very different than last year, when the silver price doubled in just five months (from March to August 2020).
Back then, silver was rocketing higher – pulling in a wave of speculative money… and headlines.
However, all that money was flushed out as the silver price petered out. Since September last year, silver has been trading in a tight $5 range.
It’s range-bound markets like this that keep many traders away. But in doing so, they’re giving up the potential for lots of little profits.
I wrote about this in August, when we looked at the iShares Silver Trust (SLV) – an ETF that tracks the silver price.
Today, I’m going to revisit SLV to see how that played out… and find out where the price of silver might be heading next.
Let’s check out the chart…
SLV Price Chart
As you can see, SLV has been trading sideways since September 2020.
On the chart, the two blue lines define the upper and lower levels of the trading range. 95% (two standard deviations) of SLV’s price history has happened between these lines.
The red line in the middle represents SLV’s average share price over that period.
When I wrote about SLV on August 12, it was just about to test support (red arrow).
As the chart shows, this support held. This coincided with an “oversold” signal with the RSI (indicating a possible reversal).
And then, on August 20, SLV tested support again… and held.
But it’s the price action since then that’s showing two different scenarios that might soon play out…
You can see a peak in both the price of SLV and the RSI on September 3 (‘A’). There’s a direct correlation between the two.
Quite simply, as momentum dwindled (and the RSI turned lower), SLV’s share price also fell.
I would use the RSI as my reference to go long. Meaning, I would want to see a pick-up in momentum (RSI turning higher) before I would look to buy shares in SLV.
And given that SLV is trading sideways, that would become a mean reversion trade. The goal being to capture a move higher to the mean (average) – the horizontal red line or higher.
However, if the RSI continues to track lower, then we’ll wait to see if SLV holds above the lower trading level (lower blue line) again.
As I wrote previously, each time a stock (or index) holds support or resistance levels, the stronger those levels become.
However, should a stock break out of that range, then that can often precede a much bigger move.
Meaning, if SLV were to break below that level (lower blue line), it could be the start of a big down move.
Either way, that could provide plenty of potential trade setups.
Often new traders only think about trading high profile stocks and commodities. And they do so with the aim of making one-off huge profits…
Usually, these kinds of trades don’t pay off.
But the SLV chart shows us there are plenty of opportunities outside some of the big-name stocks.
What’s more, you can still make lots of tiny profits, even when these stocks hardly move.
Editor, Trading With Larry Benedict
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