The iShares Silver Trust (NYSEArca: SLV), the largest silver ETF by assets, could be showing the early signs of making a cup and handle chart formation. One of the most potent chart patterns, the cup and handle is spotted when a security makes a “U” shape, forming the “cup.”
From there, the stock or ETF rises to test old highs where it will “incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks… then it takes off,” according to Investopedia.
Although SLV is down 5.7% in the past month, it has jumped 14.4% since early August, more than quadruple the gains of comparable gold ETFs. According to Bank of America Merrill Lynch, gold will weaken along with a gradual rise in interest rates, with bullion hovering around $1,300 per ounce in the fourth quarter and dropping to $1,294 an ounce next year.
The bank, though, anticipates silver prices to average $26.38 an ounce due to increased economic activity, which would support silver for industrial applications. [Silver ETFs Thwart Gold Rivals]
SLV’s technical outlook could be just as encouraging as the $7.3 billion ETF is showing early signs of a cup and handle, according to TradeWithPete.com. Key resistance will be SLV’s 200-day moving average around $24. A move through there could carry the ETF to and past Bank of America’s expected silver price.