Look at This Chart and Tell Me What You See

by JDH on August 31, 2013

As we enter the Labour Day weekend here in Canada (Labor Day in the U.S.), I would like you to ponder this chart of Silver Wheaton (click it to make it larger):

SLW-Aug30-2013

Is this chart going down, or up?

Tough question.

Silver Wheaton peaked at just under $45 in April, 2011 (not shown on this chart). The next peak occurred in November, 2012 at just over $40.  In February 2013 the best the stock could manage was around $37, and then it was the $30 range that we finally touched again this week.

That’s an obvious series of lower highs, which would indicate an obvious down trend.

Of course if you simply start reading the chart at the end of June, when Silver Wheaton traded at $18.59, this looks like the greatest stock chart of all time.  From $18.59 to $30 in less than two months.  That’s over 60% in two months, or over 360% on an annualized basis!  If we could do that every year we would all already be retired.

Of course the stock fell from $30.50 at the opening on Tuesday to a low of $27.24 on Thursday, which is a 9% drop in two days, so what we have here, obviously, is volatility.

So the answer to the question “is this chart going up or down?” depends entirely on your time frame.

The red down trend line I have drawn was not broken this week, so until this stock trades closer to $32 further downside pressure is possible. However, this week the stock did trade above both it’s 50 day and 200 day moving average for the first time since March, so that’s a good sign.

I can’t see the future, but as I read the news reports of a likely U.S. attack on Syria I can’t help but think that precious metals, including silver, will be in demand at some point.

So, this week, I increased my holdings in Silver Wheaton.  The $27 level looks like a good entry point, and perhaps some stink bids at $22 might get filled if we get some turbulence in the market.

Or not.  Who knows.  It’s the long weekend, so I’m not going to ponder it.  I’m going for a long run Saturday morning, and then a long dinner with friends Saturday night.  Enjoy.