I have received a number of emails from readers of Real Money asking about silver. I have written recently about gold and it breaking above $1300 and Newmont Mining (NEM) and Agnico Eagle (AEM) coming out of base patterns, so some individuals asked about silver, as it trades around $18/oz.
Scanning a few charts this morning, I decided that the patterns and indicators on Pan American Silver Corp. (PAAS) were worth discussing. Let's take a look.
In this daily bar chart of PAAS, above, we can can see a number of patterns going on at once. Standing back and taking the whole chart going back 12 months, I see a broad sideways trading range bound by $14 or $15 on the downside and the $21 area on the upside. Looking closer, I can see a rounded bottom-like pattern or a saucer pattern from February. Prices work lower to a $15 nadir and then curve upward. Last month, prices rallied above the now rising 50-day and 200-day moving averages.
Looking even closer, I see a big one-day reversal (on Wednesday) as PAAS made a new high for the move up and closed lower on the day. The movement of the daily On-Balance-Volume (OBV) line is positive, as it started an advance back in December and up into June -- buyers of PAAS have been more aggressive both during a rise and a decline.
Investors have accumulated shares. Since mid-June, the OBV line has been going sideways, which tells me traders are holding positions and Wednesday's reversal did not have heavy volume behind it. In the lower panel is the Moving Average Convergence Divergence (MACD) oscillator, which signaled a cover shorts buy signal in July and an outright go long signal in early August, when it crossed above the zero line.
In this first (of two) weekly bar charts of PAAS, above, we can see that prices are above the rising 40-week moving average line. The big picture looks like a large equilateral triangle since early 2016. Volume and the OBV line rise from $6 to $15 in late 2015 and early 2016 -- this is positive. After the strong advance -- a triple -- prices and the OBV line moved sideways, perhaps setting the stage for the next move.
In this second weekly chart, above, we can see a decade of price action. Reading the chart from right to left we do not see much nearby chart resistance until the $30 area from 2011, a long time ago.
In this weekly Point and Figure chart of PAAS, above, we can see the big rally and the very large sideways consolidation pattern. There is a potential price target of $26, which would mean that prices break out above the $21 resistance from February on the daily bar chart.
Bottom line: Have precious metals started a new bull market? Maybe, but the answer may be above my pay grade at the moment. What we can say is that the chart of PAAS looks positive at this point in time. Aggressive traders could approach PAAS from the long side on weakness towards $18 risking below $16. Add to longs on closes above $20 and $21.
