The Speculator's Play in Silverado
A potentially profitable speculator's play is developing in the stock of Silverado Gold (SLGLF), a low-priced mining share that we've been able to profit from several times in the past few months. The tenuous nature of this trading set-up means that it is not for the faint of heart, but for those with sufficient internal fortitude and who don't mind taking a risk, this could be a fabulous immediate-term trade.
After calling the June breakout and advance, we were content to take profits on Silverado just before prices peaked in July at $0.60. Trading volume in SLGLF had been extremely hectic in the June-July timeframe and it was clearly a case of "too much, too soon" for Silverado, which explains the large percentage retracement from the July highs at $0.60 to the lows near $0.25 later that same month. Silverado rallied somewhat off its late July lows and found another base at $0.30 in August (with volume tracing out a classic saucer pattern in confirmation of the low). From there, SLGLF rallies up to $0.50 before meeting with more resistance.
The daily chart that we've marked below illustrates what is shaping up in the Silverado shares market. Let's take a look.
The overall pattern that we've just described is that of an irregular triangle, or pennant, pattern in the daily chart with prices coiling near the "apex" of the pattern. This implies that Silverado is very near a breakout, and which direction prices take in breaking out will determine the direction of Silverado's next big swing.
It has been pointed out that Silverado recently added another 2 million shares of its stock onto the market. This could be interpreted as an inhibiting factor to a potential rally, but there is another way of looking at this. Notice the configuration of curves and lines in the daily chart above. This shows in graphic fashion the set-up to the trading opportunity we suggested earlier.
Here's where Silverado traders will win big if the resolution to this pattern is to the upside. Notice first the large bowl pattern that curves up to support the latest low near $0.40. At present, this bowl still has control over the market as it has acted to prevent any serious decline from developing in recent months. Notice too the smaller parabolic bowl that stretches from July through September, the rim of which also intersects $0.40. And of course, there is the lower boundary of the pennant pattern mentioned earlier which also happens to cross $0.40.
This convergence of important supporting lines strengthens the $0.40 level as a potential price support as well as a highly significant pivotal point. Assuming $0.40 holds as support this week, Silverado has a chance of shooting out of its pennant above $0.50 to considerably higher levels based on the upside impetus of the bowls. Silverado will make contact with the rims of these two bowls this week. A test of the $0.40 area is also possible. Therefore, using $0.40 or an area slightly below it as an exit in case of a price failure, speculators would look for the up-shot off the sides of the bowls to higher levels. Crossing above $0.50 this week would confirm that a large up-move is underway. To repeat, this trade should only be attempted by high-risk speculators, as it is by no means a "sure bet."
Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy. The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment. He is also the author of numerous books, including most recently “Kress Cycles.” For more information visit www.clifdroke.com