Silver Wheaton Corporation taking a well deserved breather

Nov 15th, 2010 – 2 Comments

Let me make it clear however that I do not think that the uptrend has been broken.


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Hi Lou,
I own shares of Silver Wheaton and have for the past 18 months and have done very well off this stock. The stock is clearly in an uptrend and breaking new highs. How do I know when to get off the ride and lock in gains. What are your thoughts on Silver Wheaton.

 Thank you.

Rob

 

Hi Rob,

Thanks for the assignment. Silver Wheaton Corporation ( SLW TSX) has been on a tear that has been very generous to investors who stepped up anytime over the last two years. I understand your concern  regarding locking in gains given that paper profits are worth the paper they are printed on. There are a number of signals that will tell you that its time to get off the ride. Lets examine them.

The three year chart is a classic example of a sustained uptrend with lots of support. SLW has repeatedly rebounded off the 50 day moving average over the course of the two year advance. It is a clear indication that buyers have been in control of the market.  At this point it looks like the stock has gotten ahead of itself and needs to pullback.

The six month chart depicts the move as SLW jumped from $18.00 in August to its current high. The move from $26.00 in mid October to $36.00 took the stock into an overbought situation and that will usually see investors taking profits.

A 38% jump in the stock price in about a month is in my view the case of going too far too fast. When a chart has that hockey stick  pattern it is  generally not sustainable. The MACD is turning lower and that in conjunction with the RSI moving lower suggests that the momentum is shifting to sellers. At least for the moment.

To answer your question look to the RSI and MACD for signs that an advance or retreat are running out of steam. Let me make it clear however that I do not think that the uptrend  for has been broken.  SLW has moved in sympathy with the rising price of silver as the U.S. Greenback has been in retreat. The pressure on the U.S. dollar has lifted for the moment but it is a problem that is far from over.

The three year chart for silver provides another illustration of a hockey stick pattern that indicates that an asset has gone too far to fast.

The three year chart for the U.S. dollar is another tool to use in the evaluation of your investment in SLW. The recent rebound of the greenback off of support at 76 on the index is what has SLW and others in the precious metals space pulling back. The U.S. dollar has caught a relief bounce but I don’t think this is the beginning of an uptrend.

Happy Capitalism!

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