Todays Big Stock: Silver Wheaton Corp Common Shar (NYSE: SLW)

As the market continues to recover, it’s becoming more uncertain as to which side of the trade to be on: long or short. Can the market keep reaching higher, or is a sell-off still looming? Could the market simply pull back a bit before continuing higher? As I stated in yesterday’s newsletter, it never hurts to have stocks in your watch list that present you with trading opportunities regardless of what direction the market heads. One such stock that may fit that description would be that of Silver Wheaton Corporation.

Silver Wheaton Corp. (Silver Wheaton) is a mining company that generates its revenue primarily from the sale of silver. At the end of 2010, Silver Wheaton had entered into 14 long-term silver purchase agreements and two long-term precious metal purchase agreements. The company operates in nine business segments: the silver produced by the San Dimas, Zinkgruvan, Yauliyacu, Penasquito, Cozamin, Barrick and Other mines, the gold produced by the Minto mine and corporate operations. Its wholly owned subsidiaries include Silver Wheaton (Caymans) Ltd. and Silverstone Resources (Barbados) Corp.

To review Silver Wheaton’s stock, please take a look at the 1-year chart of SLW (Silver Wheaton Corporation) below with my added notations:

SLW has created multiple levels of importance throughout the year. First, SLW has approached a common resistance/support area at $40 (red). In addition, the stock has also formed a short-term, up-trending support level (blue) over the last month. These two levels combined have SLW stuck within a common chart pattern known as an Ascending Triangle that will eventually have to break one way or another. If the pattern were to break to the downside, SLW may fall back down to its longer term $30 support area (green).

The Tale of the Tape: SLW is currently stuck between two very important levels for the stock: The up-trending support and the $40 resistance. A long trade could be made on a break above the $40 level with a stop placed under the level. On the other side, you could enter a short trade on SLW if the stock breaks below the up-trending support level. In that case, a stop should be placed above the level of entry. If SLW were to make it’s way down to the $30 level, a long trade could also be entered at that time.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT