Recent action in metals is positive but nothing is confirmed yet.

The problem with trying to catch exact bottoms that you can't wait for confirmation.  If all you are trying to do is to call the action in the rear view mirror then it is a lot safer but the real percentage gains happen for those who position themselves properly as the chart puts in its bottom.  It is obviously very, very difficult to correctly call the major turns all the time (anyone who can always do it would be a billionaire in 1 year).  Still, my well documented posts on DRYS, JCP, SPWR, TSLA, IBM, AA, BLDP and others in 2013 show that it is completely possible to increase your odds of finding turning points using EW modeling.  I think it furthermore shows that EW models are a far better predictor of future performance than so called "fundamentals".

In any case, I'm looking for the bottom in precious metals, especially gold and silver.  I recently posted a possible model for silver bottoming which contained this USLV chart (it's mislabeled as SLV in the post).  Here was the chart model from that post.  It clearly showed where my head was: silver would end up with 5 rail bumps into a capitulation break down that would eventually touch or under throw the bottom rail:

Since then, TDAmeritrade has magically broken the chart for USLV.  SLV works, everything else works, but for the first time ---ever--- USLV chart is missing a big block of critical data that is required for USLV analysis.  Knowing that they play whatever game they want to (including getting rid of data that does not tell the story they are selling) with the data, this only piqued my interest even more.  All of the USLV data between July 15th and December 2nd are magically missing at 480 minute resolution and below and this is the case on all systems that I look at the data with (laptop, desktop, etc.).

Today I posted a very positive opinion about metals breaking out but I didn't have time to show a very detailed chart.  So the purpose of the current post is twofold:

• Show the detailed model that I think makes the current action a bottoming candidate.
• Reinforce the fact that this view is still preliminary in that it has not been confirmed. This is weasel wording for "I plan to use tight stops in case the model is wrong".  

While I did call a bottom on silver correctly back in early July, I did not see this big-assed retracement coming which has taken us all the way to very nearly the July lows.  To date,  a lower low has not been put in so the action from the July low to the last peak in mid September can still be considered wave 1 up with the action from that peak until right now wave 2 down. This is the model I am currently going with.  It could turn out to be something more complex like a large multi-year triangle but for now I'm treating it as inverted owl ears.  In other words, an inclining double bottom.

OK, so the detailed action that is making me believe that a (or "the") bottom is in is shown in the chart below.  Since the start of December the chart has taken a definite downward slant which is actually a bullish indicator at this stage of the chart.  It has also gotten unbelievably volatility and choppy.  This is typical triangle stuff.  I think this could well be an ending diagonal which could be 5 of C of 2.  If this is true then the next move should be a dramatic up draft into a 3rd wave.  The chart shows that there was an upward wave which I labeled as 1 followed by a pullback into 2.  Then we saw a fat gap up that broke out of an established resistance level.  When taken together, a gap up with a break out begin to smell very much like a 3rd wave.  Then we saw a pull back to the resistance turned support level at 4.

This pullback could go a little deeper and even cross back into the channel again in order to touch the 38.2 fib but if this really is the break out then that should be very short lived, perhaps done within the first 30 minutes of trading before turning back up into wave 5.  If this cannot stay above $47 then I would worry that the model is wrong because 47.74 is the 50% fib and 47.02 is the 61.8% fib.  Gaps are often "filled" by the pull back.  It would take a retracement to the 50% fib to fill the recent3rd wave gap.  If it fills this gap and then breaks back above resistance again to finish out the 5th wave then traders are going to start gaining confidence in this being a bottom.

By the way, the light grey lines are Andrew's pitchfork.  I drew them in to see if they would lend more credence to the ending diagonal model.  As you can see from all of the blue circles, the middle tine of the pitchfork served as resistance and support all throughout the past month.  The chart would suddenly stop there and then gap up or down.  The respect given this center line by the chart is more evidence that this is indeed an ending diagonal.

Before I go there is an important caution that I would have warned on as it loomed but I decided to to it now.  I have to switch to SLV because of the data gap in USLV.  My original model given at the top of this post might yet resurrect itself. So far, I'm modeling the recent bottom as a C wave.  But C and 3 look the same.  It it was a 3rd wave down then we are working on the 4th wave of an ending diagonal.  We will know this if the top rail gets kissed by cannot be broken through.  Per the post that I reference above, if this cannot break out I will sell my USLV for a small loss and then wait for one more pounding down to either the center channel of the diagonal or the bottom or even a slight throw under of the bottom.  In actuality, if the model below were to play out on hysterical volume (perhaps accompanied by a big smack down in the broader indices) then it would be the highest confidence bottom that I could ask for.

So what is really, really important to silver in the short term is what happens within the blue circle modeled below.  That is when we find out if it's going to be break out or one more final gully washer breakdown before the real bottom is in.

Still, one step at a time.  Tomorrow will be an important trading day for metals IMO.  It will say a lot about whether the ending diagonal is real or illusory.