Seasonal Sector Trades: Silver’s Slide Usually Lasts until Late June
By: By Christopher Mistal & Jeffrey A. Hirsch
May 07, 2015
Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June. Traders can look to sell silver on or about May 14 and maintain a short position until on or about June 25. In the past 42 years this trade has seen declines 28 times for a success rate of 66.7%. Prior to last year, this trade had been successful for eight years in a row. Even last year’s trade was potentially profitable as silver did decline until early June. In the second chart below, the 43-year historic average seasonal price tendency of silver as well as the decline typically seen from the high in February until the low is posted in late June into early July. This May silver short trade captures the tail end of silver’s weak seasonal period (shaded yellow).

[May Short Silver Futures Contract – Trade History]
[Silver Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]

Back on February 10 we executed a trade on silver’s longer-term seasonal slump (February through June) using ProShares UltraShort Silver (ZSL). More nimble traders likely performed much better than the 0.5% gain that was realized in the ETF Portfolio. Silver shed nearly $2 per ounce from mid-February through early March before sharply rebounding at the end of March. During silver’s decline then, ZSL went from under $100 per share to over $120 before quickly falling back under $100. It was on the slide down that ZSL was stopped out of the ETF Portfolio.

[ProShares UltraShort Silver (ZSL) Daily Bar Chart]   

ZSL generally corresponds to two times the inverse of the daily performance of silver. However, ZSL is not tracking spot silver price, rather it is tracking the U.S. dollar price for delivery in London. Nonetheless, ZSL has a solid history of rising when silver price declines. ZSL could be bought on dips below $100.00. If purchased, an initial stop loss of $92.00 is suggested. If ZSL then rises and closes above $105 switch to a 5% trailing stop loss. Use ZSL’s daily close to update its stop loss. This trade will be tracked in the Almanac Investor ETF Portfolio.