Earlier this year, we capitalized on a lucrative long position in silver, and the recent dip in commodities, particularly metals, hints at another potential opportunity. Let’s dive into the current landscape and identify the trading prospects.
To understand the broader pullback in commodities, we examine the Invesco DB Commodity Index Tracking Fund (DBC). This index, a key barometer for commodities with 12% in precious metals and 14% in base metals, saw a 6% drop in July.
One crucial observation is the declining volume in DBC over the past week. This decrease (highlighted in yellow) could suggest that the sell-off in commodities is nearing exhaustion.
Currently, DBC is trading below its 50-day and 200-day moving averages (blue and red, respectively). However, its price has landed in a broad demand zone (shaded orange), signaling that the recent weakness in commodities might be bottoming out.
In the metals sector, we’ve seen pullbacks across the board, from copper to palladium. Yet, silver stands out. Let’s delve into its weekly chart for a clearer picture.
Silver faced a two-year struggle to breach resistance just above $26 (down green arrows). The breakthrough finally came in April, with silver pulling back to the former resistance, now acting as support (up green arrow).
This pullback provided the entry for our earlier trade, and silver subsequently surged past $30. However, at around $32, silver met strong resistance. Two failed attempts to breach this level (red arrows) created a double top, a bearish pattern suggesting a potential retreat to the $26 area.
On the daily chart, silver’s 200-day moving average (red), currently at $25.89, is rising, offering additional support.
While the new setup resembles our previous trade, there are key differences. We’re setting our entry at $26.25 (green), which aligns with technical analysis.
Our stop at $24.75 (red) will protect us if the price breaks below both the support level and the 200-day moving average.
This time, our targets are more conservative. We aim for resistance at $31.75 (blue) as our ultimate target, with $29.75 (blue) as a preliminary target. If the preliminary target is hit, we’ll close half the position and raise our protective stop.
Key Takeaways:
- Volume Decline: Watch for continued volume decreases in DBC, indicating potential stabilization.
- Support Levels: Monitor silver’s 200-day moving average for support confirmation.
- Entry and Exit Points: Stay disciplined with the entry at $26.25 and the stop at $24.75 to manage risk effectively.
- Target Prices: Set preliminary and ultimate targets at $29.75 and $31.75, respectively, to optimize profit-taking.
In conclusion, while the setup mirrors our past success, market conditions warrant cautious optimism. Traders should stay vigilant and adjust strategies as market dynamics evolve.
