Silver still actively looking for a breakout opportunity.

Silver is now very close to the point which I previously called as the bottom.  I modeled this as the E wave of an ending diagonal.  After charts finish a throw under on the E wave of a downward pointing ending diagonal, the next thing to look for is confirmation. 

The first confirmation is supposed to be a break back up into the channel.  If this happens with gaps and gusto then it is considered all the better in terms of gauging confirmation.  The next thing that generally occurs is test of the top resistance line of the ending diagonal.  This test (which is really a 1st wave up of the new bull market) often fails the first time and the wave often falls back down to mid channel (forming wave 2).  Then with a burst of energy, it breaks through the top resistance line in a 3rd wave because only a 3rd wave has the energy to break out of such a long standing downtrend.

The chart I showed in the link certainly broke back up into the channel and there is no question about that.  So, first confirmation is there.  But the way  I drew the top line was, in retrospect, a bit sloppy.  If you compare that chart to this latest one below you will see that the only difference was to connect all intraday peaks in this latest chart instead of using some peaks and some closing values.  Just making this minor change changed the whole nature of the chart.  Instead of the chart now being above the top resistance line, it is clearly still being penned in by it:

In the close up you can see what happened.  The first recovery wave  gave way to a big pullback and then the chart head faked a breakout.  But given that it was actually an ending diagonal itself as shown but the pink lines, it only lasted a very short time and then scampered back down within the comfort of the down trending resistance line. 

So the way I have to read it right now is that the first spike up was a first wave and now we are seeing a dramatic A-B-C retracement.  IF this turns out to be the case then we should be working on the C wave, the C wave should be about the same strength as the A wave was but it should not be shorter (C is never the shortest according to Prechter's version of the EW rules.

Again IF this is the case then we should be very near a double bottom which suddenly breaks out and moves upward with huge strength, just as wild stallions would do if they found a break or a low spot in the rancher's fence.   This behavior of testing, testing, testing as it seems to be doing is indicative of a real desire to break out but nobody wants to be the first one.  And so without some leadership, the herd remains timid.

Before I go on, let me say that it will be a blessing if silver and USLV go lower.  All of my silver metal holdings are in coins, not ETFs. The year to year and even decade to decade movements do not concern me.  This is my retirement money, my version of a 401k which Uncle Sam does not get any piece of and which he cannot steal from me with the stroke of a pen.  I still have a lot of working years left and the more silver I can buy at low prices, the richer I will be when I retire because silver is eventually going to react positively to the coming inflation.  The only ones that fear lower prices are highly leveraged short term traders.

I currently only have a small amount of money in USLV (a highly leveraged bet to be sure).  If it drops significantly from here, say 30% or more then I will double my small bet.  If it drops 70% from today's price then I will triple it.  At some point this is going to turn around and when it does it will be a dramatic thing to watch in terms of percentage gains.  If you simply take recent history show in the chart below.  The 1 wave (at least that's how I still label it) went from $46 to $107 in less than 2 months.  And that was (still) likely a 1st wave.  The next wave up (at least with the current model) is a 3rd wave.  I would expect at least $133 as its peak (if it took off tomorrow).  In other words, large percentage gains are likely in store for those who are patient and disciplined.  It's the folks who go "all in" too early who end up losing big IMO.


Having said that, there are 2 things on this chart to watch for:

1. We are near the level of what is currently being modeled as the E wave.  If the chart goes just 1 penny below that ($46.90), all bets are off (at least I think that rule hold true but it is an artificial ETF so I would always go back to the SLV ETF for full confirmation).  If that were to happen, it could mean that what I'm currently modeling as an E wave with a throw under is really just the C wave.  That would be the recent top rail bump was the D and that we are really just right now working on the E wave.  As I wrote before, we are very near a $hit or get off the pot moment in that regard.
2. If this really is an E wave then it should be 5 waves long and we are probably only working on 3 of E.  If this is the case then I wonder how it will play out (it's not clear to me yet) because C is not going to be the shortest wave and it currently still is (on both SLV and USLV) even though there is not much runway left.

Finally, there is always the most bearish possible medium term scenario which is that this is really not an ending diagonal at all, but rather a 5 wave downward motive parallel wave.  Let's face it: a lot of people anticipated immediate hyperinflation and it has not showed up yet because all of the money that has been printed has not been released into the economy.  It has the potential to be released but right now it is stored as "excess reserves" by the banks.  As people made this realization, they sold metals hoping to buy back at lower prices later.  Some will be able to do it, some won't. This could go on for another year or even two IMO and in fact it could lead to a significant retracement of the silver chart. 

The first test of the down sloping red support line happened mid 2013.  If that line is retested in the coming weeks and cannot hold, we could be seeing something like the chart below (or some common variation of it including the 5th wave stopping mid channel and creating an inclining double bottom).  But wherever it ends will be a 2nd wave and that means the 3rd wave take off like a rocket, probably with dramatic social issues driving it (aka fear and panic).  While the model below is not my # 1 choice it shows why I welcome lower silver prices.  It also shows way I think the best course of action is to dollar cost average.  Picking bottoms is for monkeys in the zoo and for people looking for a bit of financial entertainment.