Trade Recommendation: Mag Silver Corp.

Chicago board of trade

Earlier this week, it was discussed that silver is poised for a breakout. Based on its price action, one silver company is expected to outperform its peers if silver does break out – Mag Silver Corp (MAG).

Technical Overview

  • Since 2008, Mag Silver’s stock was trading within a broad triangle-resembling pattern (support – violet trendline, resistance – red portion of the red-turned-green trendline in upper graph in Figure 1).
  • In April 2016, the stock broke above the resistance (blue arrow) and subsequently moved sharply higher.
  • In September 2016, the stock retested its previous all-time high of $18 (white arrow). Note, silver was trading around $20 when the stock was retesting $18 (lower graph in Figure 1).
  • After failing to close above $18, MAG pulled sharply lower, falling by nearly 50% by the end of 2016. The trendline which had previously served as resistance for over 5 years, then turned into support (green arrow).
  • For most of 2017 and 2018, the stock has been oscillating within a downward-sloping channel (yellow trendlines).

Figure 1. Mag Silver Corp 6-day Chart

Implications

  • If silver breaks above the neckline of its short-term inverse H&S pattern (orange trendline in lower graph), the commodity will be expected to move to the $21.50 – $22 area. While this would be a roughly 22% jump from $17.80 (the trigger for the buy signal) for the commodity, this could result in an approximately a 50% appreciation in MAG (at $18). Furthermore, if the stock breaks above $18, it may swiftly move to the low-mid $20s.

Outlook

  • Neutral with a bullish bias.
  • Bullish if silver closes above $17.80. Ideally, when this happens, MAG should also trade above the upper boundary of the trading channel (upper yellow trendline).

Trade Recommendation

  • Buy the stock if silver closes above $17.80.
  • Target: Half position at $18. Remaining half after observing a topping pattern if $18 gets broken.
  • Stop: A close below the resistance-turned-support trendline.

Disclosure: No position, but may initiate a long shares/call position if silver closes above $17.80

Tags:
Author:
http://www.linkedin.com/in/konstantindimov