Silver now at "$hit or get off the pot" moment.

The ending diagonal usually does not allow the chart to go past the end of the diagonal without exposing the true personality of the chart.  While I have seen what looks like a downward sloping ending diagonal in the past just fall to a lower low, this is the rare case and the odds certainly do not support it.

Still, ending diagonals which contain a throwunder, as I am currently modeling silver to be working on, are not really confirmed to have been such until 2 basic confirmations have occurred. 

• The first confirmation is a break back up into the channel of the downward sloping triangle.  
• The second confirmation is as a result of breakout of the top resistance line (i.e. the downward sloping top line of the triangle).  That breakout usually cannot happen in the first wave up from the bottom.You usually get a failed test of the resistance on wave 1 up, a pullback into wave 2, and then the breakout happens on wave 3 up.  In other words, after going south for such an extended period, it takes the power of a 3rd wave to head north again.

 In the chart below, the  E wave is modeled as the final wave of the ending diagonal.  Then we saw an attempted break out as circled in blue below.  This first attempted break out was unsuccessful and the chart fell back into the channel and then drifted down again.  This downward drift cannot happen too much longer without hitting the end of the diagonal and, in my experience, that rarely if ever happens. 

So the real near term battle ground for silver is within the red circle.  Silver will either break down and negate the ending diagonal chart pattern (i.e. invalidating it) or it will break out with the power of a 3rd wave here. If you see a strong gap up out of this ending diagonal, that s a clear buy signal.  Better still, if it gaps up and breaks out, and then back tests the downward sloping line then that would be a 3rd confirmation that the modeled ending diagonal was in fact a real life ending diagonal.  If that 3rd confirmation happens then it further increases the odds to over 90% that a significant direction change is in progress for the metal.  Trust me, you want to be in USLV when silver breaks out.

Seeing as how GDX (gold miner's ETF) seems poised for a breakout, I think there is plenty of broad based technical evidence that calls for a strong bull run in the metals from this point.  Still, for the longer picture, keep in mind that I do not think the full deflation has played out for the world yet.  While it is beyond Great Depression levels in several parts of Europe and in South America as well (read about Venezuela lately?), many parts of the world still enjoy too much prosperity for the Great Deflation to have finished yet, including the USA.  When money printing stops or becomes ineffective and it allows all that credit deflation to hit, it could easily pull metals much lower until the herd finally gets it through its very thick skull that gold and silver is money and paper debt notes are not.  In other words, the remonitization of gold and silver and the demonitization of fiat currency.

My guess is that metals have been getting hit because the world was expecting the US fed to eventually taper.  The world actually believed that Bernanke had any chance at all of tapering (he really can't without collapsing the entire world into a deflationary depression).  But Bernake's tapering date came and went and no tapering occurred.  That hit the confidence of gold and silver deniers.  Of course, the Fed saved face by saying "we always said no tapering until unemployment and other metrics went below our trigger threshold".  Those metrics have not been reached so the fed still has some, if rapidly waning, credibility.

But magickly, Bernanke is now out of the hot seat before he had to admit that he is a liar and a con man and Janet The Dove Yellen is being shoved in our faces instead.  "Look", the fed is saying," we now have a new fed chair and she might have other ideas about tapering".  And indeed she does: she says there are no bubbles so just forget all that tapering talk.  Yellen is not stupid folks.  This is all scripted and it always has been.  It is a con, expect the con men to say CONfdence inspiring things.  That is the art of the con after all.

If metals markets reacted to the promise of tapering by pulling back, it is only logical to believe that they will respond to a NEW POLICY by a NEW FED CON WOMAN who says she has no plan for tapering by heading north again.  When the chart and the fundamentals agree with each other, the odds of a bet go way, way up.  When faced with benevolent odds in the casino, the big gamblers, who recognize the odds using computers, borrow money at 0% interest and "invest" in the direction of the odds.  This is how the rich get richer and everyone else gets poorer.  Their gambling winnings are not coming from their work but are rather being transferred from pension funds, etc. who are losing this card game.  Speculating on the stock market does not make wealth.  It just transfers it from the losers to the winners.  And the winners are betting based on insider data so over time they are going to win it all.

That's my current thinking about silver in a nutshell.  Of course in the short term, the chart matters more than the so called fundamentals.  If this chart cannot break up and out by the end of next week then the odds greatly increase that the ending diagonal will NOT be confirmed. In that case it will require more data and a whole new rethink.   Do not be surprised by a sudden, high volume large gap up in silver.   That s where the odds are pointing for next week.