Precious Metals Rebound Points to Buying Opportunity in Inverse Silver Fund
Gold and silver moved higher on Friday after the unemployment report disappointed many traders. If the economy remains weak, the Federal Reserve may be forced to continue easing, leading to inflationary pressures that might benefit the precious metals. Friday’s gains capped an especially solid week for iShares Silver Trust (NYSE: SLV) which gained 4.44% last week.
As SLV soared, ProShares UltraShort Silver (NYSE: ZSL), a fund that moves opposite to the price of silver, dropped 8.67% and is now oversold with a PowerRatings of 9.
PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
In the past, buying stocks with a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 4.3%. Other entries and exits also show high winning percentages and large average gains.
Oversold markets can become more oversold and there is no way to tell when a selloff will end. In markets like this, a scale-in strategy as explained in the Connors Research Guidebook ETF Scale-In Strategy could be useful. If the price of ZSL goes up, the advantage of scale-in trading is that you have obtained some exposure to the market and will benefit from a profitable position. If prices go down, scale-in trading provides the opportunity to add to your position at even better prices and you can continue to buy as prices go lower until you have established your full position.
All data is as of the end of day on 2/7/2014.