Flash Alert: An alternate wave count for silver.

Before I get into any details let me first say that I am unwavering in my stance that gold is money and everything else is not.  These famous words by Mr. J. Pierpont Morgan will be ignored only by those who do not understand money or the economy.  I will also say this this is elite-think and thus only partially true for the rest of us. Silver is also historical money for the masses.  Many Spanish speaking countries use the word "plata" today to indicate money (plata is the Spanish word for silver metal).  Another old saying is that "Gold is the money of kings, silver the money of lords and gentlemen, barter is the money of peasants and debt (paper money) is the money of slaves".  Of the things in this second list, only gold and silver fit the definition of money.  Money must meet all of the following three requirements:

1. a unit of account.
2. a means of exchange.
3. a store of wealth. 

Barter is simple straight across trade without use of the invention which we call money whose intention is to serve as a fungible token that represents stored labor.  Barter is for those living hand to mouth.  Slaves of course do not have the freedom of trade.  Their purpose is to work hard enough to barely support themselves and their children and then work a bit harder in order to lavishly support their masters.  Every aspect of the life of a slave revolves therefore around debt.

I think it good to have some "king money" for very long term retirement purposes but also some "lord and gentleman money" for nearer term needs.  Barter has it's place as well.  Debt is a gamble, a trap for most.  Some can use it to game the system to some success but make no mistake: use of debt is a game and one that the con men are well versed in.  You might win using debt to your advantage but if you stick to honest money you will not lose except by your own lack of ability to produce anything of value or lack of work ethic to actually produce anything.  Perhaps this is why so many elite are elite.  They have no real ability or desire to produce anything and so they resort to the con in order to thrive.  Smart con men will, for a time at least, live very high on the hog.  Until, that is, they get caught (which most usually do in the end).

In any case my silver bottom watch continues.  In short, it appears to be closely following my prior EW model, at least at the small scale and at least for now.  The top chart below was provided in a post on 6-26 of this year.  It clearly predicts another small wave down followed by a bounce down to

what I listed at the time as the 5th of 5th of C. 

That modeling is represented by the red line coming up to the top of the down sloping channel  and then bouncing down.  In subsequent posts I suggested that the bottom would likely occur in 1 of 3 places: mid channel resulting in inclining double bottom (which would be bullish and likely predict a rapid rebound) OR
bottom channel OR just below the bottom channel (which would be an Elliott wave "throw under").  In the first 2 cases I would expect declining volume as the sellers dried up and in the 3 case I would expect a volume surge as the suckers were psychologically pushed into capitulation right at the bottom.

The picture to left is an overlay of the above chart with the current action that has occurred up to 7-5.  Everything in the orange box is new data.  In short, the chart did push a little lower as expected before doing a vee style recovery to the top of the channel.  In fact, the action continued above the channel briefly but then formed a double top which sent the short sellers back into action.   After that there is a clear 3rd wave down which is indicated by the large gap (aka "cliff diving").  Given the presence of the 3rd wave, I assume there was also very small scale 1st wave before the 3rd and thus likely a similarly small 5th wave following the 3rd.  Given the small size of the 1st wave and the likelihood that the 5th will be the same size as the 1st according to EW rules where the 3rd was an extended wave, that 5th could be so short that it might even already have occurred.  If so, the chart will not make it back down mid channel and the resultant inclining double bottom will be all the more powerful.  If this is all correct, we should expect a big rally from here.

Now the bad news which is, in short, that I now think we really just witnessed only the completion of the 3rd of 5 of C, not 5th of 5 of C as originally stated some days ago.  I think many will get overly bullish into the coming rally and that there will be a final shakeout to kill off even the most determined metals bulls.  Only after capitulation will the real recovery begin.

So why the new doubt when things have been following the model so well to this point?  Well, there are 2 reasons.  First, I really expect a selloff of this magnitude to end with a capitulation blowout. Everyone has to be ruined on metals.  This is mostly the case today with many "experts" even calling metals "a bubble" regardless of the fact that we have nearly 17 trillion dollars worth of un-payable debt on the books (and 100 trillion in future obligations and likely many trillions in off balance sheet debt as well).  The real bubble is in Ponzi promises, not physical metal.  I am 1000% sure of that.  Still, a high volume capitulation finish would really cinch things up for me that a long term bottom is in (as in "likely never see silver price this low again in history").

Second and more important than the lack of capitulation bottom is an error in my initial reading/modeling of the Elliott wave chart that left me 1 large wave off of the real wave pattern.

My initial interpretation is shown in blue.  My new and current interpretation is shown in red.  Turns out, this makes a pretty big difference in the final outcome.  Why did I change my view on this?  Because my first interpretation was in violation of the EW rules.  Namely, wave 4 can never go back into the region of wave 1.  It is a rookie mistake but I made it.  The correct interpretation is that blue 1 is in fact the first wave down but blue 2 is really A, blue 3 is really B and blue 4 is really C which makes it also the real 2nd wave of the big C.

The corrected modeling of the entire C wave is thus shown at left (click on it to get a more detailed image).  As you can see if you compare this to charts above, the action is the same except we really did not reach the bottom of C yet (5th wave), we instead only reached the 3rd of C.  IIF this new interpretation is correct then we should get a very big, vee shaped rally to the top of the channel in which the bulls get too bullish too prematurely.  That will be the 4th of C.  Notice that the new interpretation shows red ((2)) as a sideways correction.  That implies, via the EW rule of alternation, that the 4th wave will be a vee type wave.  The recent chart ending of wave 3 (which I think has now occurred) was very weak and it leaves us with an inclining double bottom. It is cause for bullishness for traders and they will jump in on leverage to make a quick buck from it IMO.  So this is a very good setup for a strong 4th wave move as modeled.

Following a likely failed test of the top channel line, my current model predicts that the chart should be deflected downward into a 5th wave that should be about as painful as the 1st wave ((1)) was.  Well, that 1st wave was not really very strong, was it?  So the final 5th wave down might not actually fall below the 3rd wave which I think has just finished.  In fact, a failed 5th would result in an inclining double bottom which would be an extremely bullish setup for the next big wave up which I think at the very least will approach $50 and just as likely make a new high to $70 or above.  So while I think the 3rd of C is now likely done and that a 5th wave down is still in the cards, anyone buying silver in the current area will likely not be far wrong when the smoke clears.  A good strategy for savers is to dollar cost average into this bottoming process.

I think it's important to note that humans are obsessed with catching the exact bottom.  If they miss it by a couple bucks they despair and freak out when they see lower prices happen.   I can understand that behavior when applied to stocks because stocks clearly have no long term historical value other than what the next, highly leveraged, greater fool will offer you for them.  With stocks and bonds there is always a great chance that they will go worthless some day. 

The beauty of physical metals is that you never have to worry about that.  You buy the metal and, if the dollar price goes lower for a month or a quarter or even a couple years, your metals are in no way diminished.  They will happily sit there in your vault until the grand debt Ponzi collapses of its own corrupt weight.  They will be there for you when electronic accounts fail and every paper investment reveals its disgusting Madoffian stench.  Real metals buyers are savers who always hope for lower prices in the near term given the long term certainty that corrupt fiat currency and fractional reserve scams are destined to fail.  Moreover, world conditions make is clear that the time for collapse is not far off.  Years, not decades IMO and I would not completely rule out quarters or months either.

And now for the obligatory disclaimer.  EW modeling is just that: modeling.  Modeling theory is not perfect and modelers themselves can misread the data (cough cough).  Chaos is by definition difficult to predict with any accuracy although there are in the field of mathematics areas of study which specialize in trying to do just that.  Also, as we get down into the wee waves, the chances of chaotic events affecting the model in subtle but significant ways increases rapidly.  In other words, predicting to a certain degree is not that difficult but the smaller the degree, the higher the odds are that something will play out differently.  The one saving grace of EW modeling for this is that it contains built in triggers to tell you when your model is wrong (if only you remember to discount them in the model...).

Thus the prudent market timer will use modeling as only one set of input data to be used in conjunction with other world events (such as an increase in QE instead of the suggested tapering...) to time purchases.  For those whose energies are focused on other things (which is most people), dollar cost averaging is often a better strategy than market timing.  Forget the day to day ticks of the con and buy on a regular basis.  When you retire you will have a pile of metal coins that will have value when other things do not.  This is never a losing strategy and it has the benefit of freeing you from agonizing over market fluctuations.