I'll be speculatively buying USLV at the open on Monday.

I've not had a lot of time to really dig into the metals charts lately because of out of country travel (and prep work leading up to it).  These metals charts need more than average digging into for several reasons.  First, they are trying to form a bottom after a bubble.  The herd is nervous about them given their large pullbacks over the past couple years.  It is expected.  Today the mantra is "in Bernanke we trust".  The Bernanke Put and low margin interest rates have made stock ownership a no brainer.

But now the fed has to do something about the bubble of its own books which are loaded with crappy assets that nobody else wanted to buy.  The fed has to at least stop digging a deeper hole and that is what tapering is all about.  The fed has to know by now that this will cause market turmoil but it probably doesn't matter too much anymore.  All of the insiders got bailed out and fair warning that they needed to clean up their balance sheets.  So anyone who isn't ready for what is coming is probably not an insider and therefore it is actually a boon to the good old boy system to see them get wiped out.

Another headwind to markets (more like the wall of a hurricane IMO) are the wild instability in emerging markets.  The US does a good job of feeding its citizens useless news while papering over the problem happening all over the world.  The central banks of the world have been losing control of their bond markets and so they have now began to panic by raising interest rates.  What was a race to zero interest rates is reversing.  The governments are faced with hyperinflation (which leads to mass riots and the killing of leaders in the streets because food is unaffordable) or collapsing industry which has become dependent upon low interest rates.  Of the two, deflation is the least damaging but it is still very hard on the people.  It is like making a heroin addict go "gold (sic) turkey".   Withdrawal pains are unavoidable but at least there is light at the end of the tunnel.  Additional money printing, on the other hand, always kills the patient because the doses have to get higher and higher to have the same euphoric effect.  I expect we will be hearing about "contagion" soon.  I expect all the government criminals to start blaming each other and pointing fingers.  This is how criminal enterprises always end (as I have explained in these pages many times).

As stocks begin to collapse, at some point metals will be viewed as a safe haven.  The market is already gearing up for this by buying into the miners even though the metals themselves have not put in any kind of confirmed bottom.  This is very typical bottoming behavior!  It's called nonconfirmation.  Usually the miners and the metals move in locked step but when one moves up (or down) without the other, this nonconfirmation suggests a change in direction coming soon.  Usually, when the miners hit a 3rd wave up, the metals respond with their first wave up.

So now check out USLV.  I don't know if this is the exact bottom but I do believe it is an important one and it could easily mark the end of the current bear market in metals.  After the recent peak to $54, we see an expanding triangle going back down.  The triangle ended in a 5th wave throw under which is typical.  Per EW rules, the individual waves within a triangle are a-b-c.  Check it out below.  3 waves down into black 1 (a-b-c).  3 waves up into black 2 (a-b-c).  3 waves down into black 3 (a-b-c). 

Note that the 3rd wave is the one with the huge gap. This is not a coincidence.  Then 3 waves up into 4.  Now, the final wave down needed to touch the bottom rail of the triangle somehow.  So in order to do it, we see a clear 5-3-5 pattern which is really an a-b-c.  The blue numbers count the sub waves.  The 1st 5 waves down form the larger A wave.  Then 3 waves up.  Then 5 more waves down to form the C wave.  Note that it was the 3rd of C that actually formed the throw under.  The break back into the channel was 4th of C.  Then the back test of the rail was 5th of C.  

There are other considerations to keep in mind here.  If this does not get a lower low than Dec 30th, then the move from Dec 30th to Jan 10th might actually already be wave 1 up.  After all, the miners are already in wave 1.  So this move back down could easily turn out to be a wave 2.  Very easily.   You cannot discount what that could mean for USLV in February!  3rd waves are never the weakest and are usually the strongest.  There is killer pent up demand in metals but nobody wants to be the first wildebeest into the water to cross the river for fear of the crocodiles.  Imagine that the herd just got to the banks of a river that they know they must cross.  They mill about on the banks moving back and forth, nobody wanting to be first in.  But more wildebeests are coming in from behind and the pressure is building to "do something".  I hereby claim rights to be lead wildebeest this time.  I will plunge into the river and hope like Hell that my timing is good and that the crocs have not assembled yet.

For the lucky and the brave there will be great rewards!  In the last move up, the low was ~$42 and the high was ~$52.50.  That was about a 25% move.  If this is wave 3 coming up then expect at least 35% or more. 

But that will just be the start of it if my model is correct.  Near major trend changes the chart can often become very busy and confused.  When I simplified it into the underlying impulse moves, an interesting picture formed as you can see below.  In short, I think that it is very likely that we are seeing the peak of the right shoulder of a head and shoulders.  If this is the case then crossing the blue line will mean a breach of the neckline.  The H+S price target after that occurs is found by subtracting the neckline from the head (about $10.70) to the neckline at the point of breakout (~$53) for a target of about $63.70 which is nearly 50% from today's value.

And finally, mainly for fun, I give you my own indicator of direction change which I call "the owl" because the chart pattern has always reminded me of that bird.  In the case of bear markets turning into bull markets, it is the reverse owl.  On the left below is the un-retouched current USLV chart.  On the right is the inverted mirror of the chart.  Ok, not very scientific I agree.  But I have been using "owl ears" as a double top/double bottom indicator successfully for years so take it for what it is worth.