All That Glitters Is Not Gold: What About Silver?

Silver has lagged gold for quite some time.  Silver is a precious metal but is often referred to as "poor-man's gold".  It has never been considered the same "store of value" as gold.  Perhaps the disconnect comes in that silver has more industrial uses so it may be perceived as being more economically sensitive.  In times like today, where the global economy is just coming out of recession, there may be enough doubt as to the sustainability of the recovery to keep the brakes on silver prices.  Notwithstanding, the price of silver was up about 50% in 2009 and is up about 15% so far this year.  So are silver mining stocks worth a look?  The chart of Pan-American Silver, symbol PAAS, looks very conducive to trading.  I'm not sure which way PAAS will go but from the chart below, the key price level is $27.00.  There is a well-defined horizontal resistance line at $27.00 that began in August 2008 and just was broken to the upside yesterday.  Volume was strong as well.  So use the $27.00 level as a pivot-point.  If the level holds, PAAS is likely to move higher.  The next significant resistance level appears to be at $35.00 where another horizontal line (the tops of the then head-and-shoulders pattern) exists.  If PAAS cannot hold above $27.00, then the stock could fall to the $20 - $21 level where there was a double bottom in February 2010.

Remember the Ag's

For the last several months when there is discussion about commodities, it has been about copper, gold and oil.  All three have been strong and seem to be leading the commodity move off the recent bottom.  While most of the commentary has been focused on these commodities, I'd like to suggest that conditions for the grains and softs look constructive.  Corn, wheat, soybeans as well as coffee and sugar could be setting up for a significant move to the upside.  Drought conditions in some parts of the US farm-belt and flooding in others have hindered early plant development or have delayed planting altogether.  There are some significant supply issues in the coffee market as well, mostly the result of crop rotation into soybeans when the price of biofuels was skyrocketing last year.  Coffee trees take approximately 4 years to develop fruit.

So how can one play a move in grains. There is an exchange traded fund sponsored by Powershares that tracks the Deutsche Bank Liquid Agricultural Commodity Index.  The symbol is DBA.  It is roughly equal weight in corn, wheat, soybeans and sugar.  From the chart below, DBA has been in a bottoming channel since late September.  A close above $27.50 could suggest a break-out of the channel.  Additionally, a close above $27.50 would be a meaningful move above the 200 day moving average as indicated by the dotted red line.  If this represents a true break-out, I would look for a near-term target of $32.50, which represents a 50% re-tracement of the downward move from June 2008 to September 2008. The upward move to $32.50 would also close the series of gaps that were made during this downdraft.

Energy Complex

With the Fed pumping up the monetary base, the talk is re-flation. Let's look at the energy complex. The charts for both Natural Gas (UNG) and Unleaded Gasoline (UGA) look constructive. While one needs to wait for price moves over the well-defined resistance lines (in UNG it is a downward sloping line while in UGA it is a horizontal line). UGA also appears to be in a U-shape or saucer pattern. Both UNG and UGA show very little resistance above the break-out areas so it is reasonable to expect a significant move to the upside if they can break-out. Be patient.