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A Bolivian miner shows rocks containing tin, zinc and silver during his work shift inside the El Rosario mine deep within the Cerro Rico mountain, the world's largest silver deposit, in Potosi February 27, 2008. As far as a long term forecast, Lou Schizas believes that silver will do well as industrial demand for the metal continues to grow and investors look for alternatives to the U.S. dollar (DAVID MERCADO/REUTERS)
A Bolivian miner shows rocks containing tin, zinc and silver during his work shift inside the El Rosario mine deep within the Cerro Rico mountain, the world's largest silver deposit, in Potosi February 27, 2008. As far as a long term forecast, Lou Schizas believes that silver will do well as industrial demand for the metal continues to grow and investors look for alternatives to the U.S. dollar (DAVID MERCADO/REUTERS)

SCHIZAS’ MAILBAG

Silver and Wheaton heading in the right direction Add to ...

Lou, I like the past results, the long term prospects of this company [Silver Wheaton Corporation], and the streaming model.

I have been in and out over the years, and am aware of the seasonality (usually low values in late spring and summer). Just wondering with all the shorts on this right now, what the charts say with regards to 34-35 as a long term entry point. – Warren

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Warren Hey Warren, This will be the second time that I examine the case for Silver Wheaton Corporation (SLW TSX). The first time was on November 15, 2010 when the shares were trading for $34.11, silver was trading for $26.06 and the US Dollar Index was trading at 78.08. Rob had enjoyed a great ride over an 18-month period and wanted to know how to tell when it was time to lock in profits. A review of the charts revealed that the stock had gone too far too fast and would mostly pull back. However it was noted that the uptrend had not been broken and that the stock just needed a breather before advancing further. The shares did continue its advance to $42.50 by December of 2010 which over the last two years has been followed by a downtrend that took the stock to a low of $23.11.

Another run at the charts will add further depth to your consideration of a long term entry point in the $34-$35 range.

The three-year chart indicates that the downtrend that started in April of 2011 was broken in September of 2012. There were signals generated by the MACD and RSI in May of 2012 that the momentum was shifting towards buying as the stock hit its 52-week low of 23.11 on May 16, 2012 and made its way to the 52-week high of $41.18 on November 1, 2012. Since then there has been a retreat to $35 where the shares have found support going back to early 2011.

The six-month chart provides a close-up of the advance that began in late July as the MACD and RSI indicated that buyers were moving in with conviction at $26 lifting the price to $39 in September. Currently the momentum indicators appear to be turning higher suggesting a trade is setting up, which could test resistance at $38.

The three-year chart for silver indicates that the price of the underlying commodity needs to break above $35 to fuel an advance in the stock. Kudos to the team at Guildhall Wealth Management who correctly called the advance off $27.50 in the summer of 2012.

The three-year chart for the U.S. dollar index looks to have support at 79 and is meeting resistance at 81. What SLW needs to move higher is a breach of support at 79 on the index and silver to move through $35.

In answer to your question it looks like a trade is setting up that you could take advantage of. As far as a long term forecast I believe that silver will do well as industrial demand for the metal continues to grow and investors look for alternatives to the U.S. dollar. With those factors in play SLW is a stock you should consider accumulating.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 
Security Price Change
SLW-T Silver Wheaton 29.29 1.07
3.792 %
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