charting exercise is just a probabilistic modeling technique for tracking what is essentially a chaotic event - the emotions of people.
Chaos is somewhat predictable at the very high level but as you get to finer and finer resolution the odds increase rapidly that a butterfly's wings will perturb the direction. Still, Elliott Wave charting has been the best tool I have used for trying to time the markets and my EW model for silver indicates that we should have one more wave down indicated by the blue line coming out of the circle.
The strength of that blue line is hard to predict. It could stop mid channel and then bounce up. This is actually the most bullish formation because it results in an inclining double bottom. It means buyers couldn't wait for the chart to hit the bottom of the channel before stepping in. Another possibility is for the chart to touch the bottom of the channel on dwindling volume, again indicating that all the sellers have been fleeced and it is time to run the price up again. Finally, there could be an avalanche of sellers causing a high volume poke down through the bottom of the channel. This could result in another extended wave down so the buy signal here for traders is when the chart tests the channel again from below and then breaks back up through.
I also want to point out some other things that are related. In the past, metals smash downs would be real long term events. Why? Because Americans had all the money for buying them and Americans also had a strong currency called the dollar. So Americans had the choice of metals or paper money. Thus, when metals were smashed down like this it panicked the only possible buyers out of the metals and into something else that could be held for a long time with little perceived risk. But today things are different. The smash down might still be scaring Americans but it is being used as a buying opportunity by Asians. Those trying to sell the metals into the fear zone are getting a big surprise: the buyers love the lower prices! Instead of making the entire market fearful, a big chunk of the market is celebrating and buying.
I think Asians have a long history of crappy paper money and so they simply don't trust government money like Americans do. There have, for example, been many stories about how India is having to enact stupid laws in order to quench the gold buying of its people. Indians LOVE gold. Not paper gold but real, physical, in your hands gold. And they love it more at lower prices. Chinese folks are of a similar mind except that their government has been telling them to buy gold and silver for the past 5 years now. China, IMO, intends to back the Yuan with metals in the future as soon as they sense enough weakness in the dollar. That would be the end of the American funny money hegemony over the world. It's what I would do if I were them and there are plenty of them that are far smarter than me.
I think this is the new dynamic that JP Morgan and Goldman Sachs did not count on with the metals sell off. I think the Federal Reserve is very worried about what it is seeing. The fed knows the golden rule: he who has the gold makes the rules. I sure hope we are not "selling" metals to the Asians that we really don't have (naked shorting) in the hopes that they will get scared out of their positions and let us cover our shorts on the cheap. I really hope that is not happening because if it is then we are going to lose that bet. Asians are committed to metals ownership, period. They cannot be scared away by fake paper money. If we have been doing this we will eventually default and fail to deliver the gold and silver that we sold them. You will know this by a COMEX default. If this happens and we don't make it right then it could start a world war. Who knows, maybe that is the plan in Washington given that the US military is so powerful right now. Perhaps all roads still lead to the US "going Roman" (conquering people to get their money instead of earning it honestly).
Another indication of nearing the bottom is the massive sell off in gold miners. Check out the chart for Barrick Gold (ticker ABX). It recently broke long term support in what was most probably a 3rd of C wave. Keep in mind that C waves generally look like 3rd waves - they are powerful. So a 3rd of C is like a 3rd of 3rd and that is what it took to smash through this long term support "with gusto". Also note the declining volume on ABX. The sellers are tapering off and volume changes often precede trend changes. If I had to venture a guess, ABX is within spitting distance of a sustainable bottom where the speculators will then pile back in on margin for huge profits. I think the lowest it will go is the downward sloping support line shown in grey below. Of course, those who are buying shares in miners are gamblers because there could be a lot of hidden $hit buried in the kitty litter. With corporations you simply never know the depth of fraud and corruption and off book leverage that has occurred. Conversely, those buying the underlying metals are savers. Gamblers might win big but savers will never lose.
Nobody knows for sure what will actually happen in the short term of course. That's why they call it chaos. But we do know one thing and it is a VERY powerful thing to know: if you buy the metal and hold it yourself, the metal can never, ever go bankrupt. There can be no lawsuits against it, no CEO fraud that steals the value of it. In other words, it gives you the possibility of holding until the storm passes knowing that your ship might take on water short term but that it is completely and utterly unsinkable. Armed with that knowledge you never have to abandon ship in a panic as long as you don't buy it using debt and you hold it yourself so that some scum bag Wall St con man can't steal it from your account while you are busy living your life.
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