A closer look at SLW: so beautiful, so bullish

Every once in a while, you come across a chart that is just screaming at you to go long. This morning, I took a long hard look at a 1-year chart of Silver Wheaton (SLW), and it sure as hell screamed out loud. It gave me deafening comfort that I'm long SLW calls.



Right now, SLW looks very bullish both fundamentally and technically.

Fundamentals:
Inflation is soaring, dollar is toppling, and Ben is going to cut +75bp tomorrow. Gold has been getting some press for shattering $1000/oz, but silver continues to outperform gold in the background. SLW's silver production remains unhedged, and SLW will take full advantage of further growth in the price of silver. There is potential downside risk if the stock market crashes, but SLW has been diverging from the broader stock market since the serious sell-offs began back in January.

Technicals:
Looking at the chart above, SLW has been consolidating ($14.5-$18.5) during the past six months. SLW took a breather after a powerful 80% rally during the fall of 2007. SLW has also been taking pressure from a tumbling stock market, causing it to lag behind silver futures during the past few months. But with silver futures continuing to soar to record levels, SLW will re-align itself with silver prices. The chart at the bottom shows that the SLW:Silver ratio is rebounding from a strong support level. Looking at other technicals for SLW: volume is rising noticeably, momentum indicators are pointing up, and the long term trend is looking strong. My SLW 20 calls (50 cents away from being ITM) will expire in four days. If Bernanke reflates aggressively tomorrow, my best case scenario will be for SLW to test the upper boundary of its current uptrend (around $22.5) before expiration.