SLV and GLD

Given today's downside volatility after a massive run-up in silver and gold prices we address both the iShares Silver Trust (SLV) and the SPDR Gold Shares ETF (GLD).

The big risk: Both SLV and GLD show climactic volume in the face of potential bearish reversals that warrant proper risk management or at least reduced long exposure to a comfortable sleeping level.

Earlier this week in Straight from the Chart, we highlighted that the iShares Silver Trust (SLV) remained bullish when it surpassed 100, exceeding the targets for the "mother of all cup and handle patterns" at 85 and 95, but given the magnitude of the rally we suggested using Monday's (1/26) gap as risk management support.

SLV gapped lower today and filled that gap from 92.91-96.51. Monday's upside gap and today's downside gap create a 4-day tactical island top that could provide an overhang for SLV.

The big risk: Monday's daily volume was higher than that seen in early May 2011, increasing the risk for a "buying climax" and a deeper drawdown in SLV.

Under this scenario, key Fibonacci retracement levels provide downside levels to watch at 83.80 (38.2% of the late October to late January rally), 75.76 (50%), and 67.72 (61.8%).

Turning to the weekly candle chart, a close on SLV today (1/30) below last week's open at 86.19 would create a weekly bearish engulfing pattern. This would increase the risk for a "buying climax" on SLV in our view.

Chart 1: iShares Silver Trust (SLV) (top) and volume (bottom): Daily chart

Chart 2: iShares Silver Trust (SLV) (top) and volume (bottom): Weekly chart

Stay tuned - we will refresh our view on the SPDR Gold Shares ETF (GLD) shortly.