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« Pan American Silver: Building a Bullish Base | Main | First Majestic Silver Corporation: More Costly than meets the Eye! »
Wednesday
Dec102008

Pennant Formation on Silver Standard Resources

Having halved then halved again from its highs, Silver Standard Resources is firmly in the oversold category, along with most other silver stocks. However after this extreme sell off, SSRI appears to have formed either a pennant or ascending triangle, which should be noted by traders and investors who follow this stock.

Pennant Formation on Silver Standard Resources
(please click on the image to enlarge)

By looking at the chart above, one can see that SSRI appears to have made a sort of pennant formation, with the parameters shown by the blue lines. However this could also be considered an ascending triangle formation, if the upper line were to be made horizontal. Either way, the formation is traded in the same way. A break to the upside would see SSRI jump to around $15 whilst any breakdown through the formation would re-test the lows at $6. Given the RSI and MACD trending higher, and still having a fair way to before becoming overbought, we think an upside breakout in SSRI is more likely.

Let us consider the trading possibilities that could be used here. Of course, options would provide significant leverage for any trade, but we think it is quite possible to gain significant trading profits simply by trading the stock itself. If we were to make such a trade, we would buy SSRI somewhere around today’s closing price of $10.31 in anticipation of a run to around $15.00 within a month. As soon as we had made the purchase, we would place a sell at $14.00 (in order to be conservative and allow for some margin of error) and then hopefully have this sell order executed within a month giving us a gross profit of around 38%, a very satisfactory trading profit.

We are not going to trade this one just yet, but if any readers do give it a go please let us know how it worked out for you. However we are just going to watch this one play out and if it does work out this way we think it will, this will restore our confidence that some of the mayhem in this sector has subsided and trading patterns such as this one can be applied again.

Until then we are watching and waiting, before we deploy our opportunity cash.. stay tuned!

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