foxex: Silver Lining

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, May 27, 2020

1. Buyers jump in to send stocks to new highs

2. Comparing precious metals

3. Unique opportunity for silver investors

Market Moves

Stocks continued the profit-taking trend for the first half of the session until buyers decided to snap up what they perceived as value. The result was that the Nasdaq 100 (NDX) closed one-half percent higher, while the S&P 500 index (SPX) closed an impressive 1.48% higher. This shows that behavior from yesterday that suggested institutional investors are rotating into value-priced stocks and beginning to anticipate the re-opening of the U.S. economy, has carried on for the second day in a row. This leaves a potential opportunity for shrewd chart watchers to keep an eye out for new opportunities such as specific sectors or precious metals trades (see below).

In the chart below State Street's S&P 500 index ETF (SPY) shows that it broke to a new high. The analysis of price-related volume statistics shown in the chart, the support level appears as $282 while resistance begins forming at $312.

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Comparing Precious Metals

The chart below compares the spot price of Gold Futures (XAUUSD) as the blue line, with Silver Futures (SI) as the orange line. While it is obvious that these prices diverged wildly during the pandemic price shock, it may not be so obvious why. The answer is that Silver is more heavily used in manufacturing, so the current environment had a significant impact on demand for the metal.

Investors are now looking ahead to a point in time when companies will again be fully open for business and are speculating that manufacturing will soon return to its pre-pandemic levels. That means the price of silver is closing the gap with Gold, and over the next several weeks is likely to continue to do so. The correlation coefficient indicator (red area) below the chart signals that these two metals don't usually stray far from each other in day-by-day percentage moves, which implies that the current disconnect is not likely to last much longer.

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Unique Opportunity for Silver Investors

For investors who expect that silver prices will continue to rise, the chart below compares three stocks of Canadian silver mining companies, Pan-American Silver (PAAS), Mag Silver (MAG), and First Majestic Silver Corporation (AG). Two of these stocks show relative strength to the price of silver. If this continues, those two stocks should show significant gains over the coming month.

The Bottom Line

Stocks shrugged off profit-taking behavior by institutional investors and took on new highs. Gold and Silver prices also continued higher, with Silver prices and Silver mining company stocks showing more potential for gain.