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Revisiting Silver Stocks

Posted: Aug 05, 2009 15:22 PM by Joey Fundora

Tickers in this Article: CDE, SSRI, PAAS, SLW

Back in April, we wrote about how the gold to silver ratio was rebounding after decoupling during the financial crisis, and how silver might outperform moving forward. Silver did indeed outperform for the following month, but the ratio once again pulled back as the markets softened. Once the markets began to rally again in July, the ratio began to increase. It appears that the pattern is favoring silver during times of speculation and gold during market weakness.

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Source: StockCharts.com

The U.S. dollar has continued to weaken, and it has been benefiting the miners once again. Silver miners in particular have been perking up lately. Ultimately, both gold and silver miners benefit from the dollar falling, but with silver still trading at a discount to gold, it's possible it will continue to play catch up.

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One silver miner that has continued to develop nicely is Coeur D'Alene Mines Corporation (NYSE:CDE). It rallied strongly from April through May, almost doubling in a month. It has been consolidating in a channel since the early May high, and recently cleared the channel on the upside. If you look closely, there is also a double bottom near $10, which is a prior pivot high and where the 200-day moving average is. This held as solid support, and appears to be a new floor for CDE. The next level of significant resistance would be the May high near $17.40.

Source: StockCharts.com

Silver Wheaton Corp. (NYSE:SLW) is another silver mining company that held support near the 200-day moving average. SLW has been building a large base from $7 - $11, and is now developing a smaller reverse head and shoulders from June to the present. It cleared the smaller consolidation from $7 to $9, which implies a test of the $11 level. While this base could use some more consolidation, a breakout above $11 should be respected.

Source: StockCharts.com

Pan American Silver Corp. (Nasdaq:PAAS) is yet another silver miner that held on a pullback to its 200-day moving average. While it broke under the prior breakout level, the overall pattern is consistent with a consolidation move. It moved back above the prior base at $19, and also cleared a declining trend line that has framed the consolidation. The next level of resistance remains the prior high at $24.32.

Source: StockCharts.com

Silver Standard Resources Inc. (Nasdaq:SSRI) looks similar to PAAS, although a bit choppier. It also cleared a channel it was using to consolidate, and also appears on its way to test the high at $25.60. Much like the others, SSRI has been sticking to the pattern of higher highs and higher lows. If it continues this pattern, the $25.60 level should be cleared in the near future. Longer term support is near $16.31, which held as support on a test of the 200-day moving average.

Source: StockCharts.com

Bottom Line
Overall, many of these silver miners look very similar. There was a great rally from March into May, and since then they have been consolidating those gains. They all held a test of their 200-day moving averages and each successfully formed higher lows. This could be the line in the sand for longer term investors, and with the dollar apparently breaking down again, it's possible that silver and silver stocks are headed back higher.

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At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

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