Metals update - important support level right now.

In this post I pointed out that SLV had retraced 61.8% of the recent rally.  This big pull back was not unexpected due to the shape of the waves that had occurred since June.  I have documented this model view on several occasions like this one in the past couple months.   Compare the TRX chart from that post to the current chart below.  While the shape of the triangle that seems to be forming is close to the modeled behavior, there is a significant difference between the threat that I had modeled and the chart that ensued: my chart had only 3 waves in it  This one has 5.  Internal triangle waves can be 5 waves but are most often only 3.  That makes the recent action in metals appear more bullish.  Also, have a look at the chart of TRX below.  It had 5 nice waves up.  The middle (3rd) wave was the strongest.  However there is an important detail: the 4th wave overlapped wave 1.  Triangles are the only place where this is not only allowed but actually commonplace.  So what looks like a motive wave up should be viewed with caution IMO because it could turn out to be just the internal wave of a triangle.

Here's a zoom in on the action.  There was no need to number the waves given their apparent clarity.  However as mentioned above wave "4" moved back into the range of wave "1" which is a warning sign that this may not be as it seems.  Also, what is that triangle doing in the middle of the wave??  Everything I have read indicates that this is not allowed UNLESS this is really a 5-3-5 and that triangle is the 3 wave B movement.

On the other hand, the recent retracement has come back down to what appears to be the prior 4th.  It would tempt conventional wisdom to buy here speculatively.

I do think metals and miners are due for a bounce.  But I worry that the bounce will not be a break out. I worry that they will instead go back up and re-kiss resistance from below and then form a declining double top which will spell even lower prices to come.  I say "worry" but that is only to convey the risk to traders.  In fact I hope like heck that they bash metals and miners into the ground in a historic, solar style great depression because if they do then my retirement will get a big shot in the arm IFF the world manages not to destroy itself thus giving this historic economic Ponzi time to finally collapse out and bottom out. 

But back to the potential for a near term bounce.  Below is the chart of USLV.  It looks to me like 5 waves have completed into what could be the C and final wave of the pullback.  Look how the chart flattened out as it reached that down sloping green support line.  It is like a river to the herd.  A decision must be made whether it is too dangerous to cross or whether to plunge on through.  A plunge through would seal the fate of metals and miners IMO: a trip to the bottom of the triangle would immediately become the highest odds poker hand.  What I expect to happen is some kind of a rally.  It could be back up to the top green line, it could be back up to the level of the prior 4th.  And in fact you could be looking at the bottom of wave 2 of the new bull market in metals.
 
It should go without saying that any of these moves require confirmation in order to be high confidence.  Imagine the herd is at the banks.  Just because one young fool jumps in the water it does not mean the herd will follow.  More likely the herd will watch to see if he gets eaten.  The herd often gets right down to the water line only to run away when the jaws start lunging at them on the banks.  I just think the African nature films are so instructive here because as smart as we think we are, the herding instinct and therefore fundamental principles are the same.  If there really is a path to enlightenment it will, at the very least, involve the process of overcoming the herding instinct that has been hard wired into our brains.

I will also point out that C is shorter than A in this case and that is not supposed to happen.  Again, danger Will Robinson, the charts like to use mimicry in order to fool those who still use pencils and paper to make rough lines on charts.

The safe play is to sit and watch for fear of a gap down.  If you must be in the game buy on Monday when it looks like that 5th of C is "done done" and then put your stops just below the green line.  Then watch the waves on the bounce (should it occur) to see if it is going to be a crappy little a-b-c to the prior 4th wave (but still 10% if playing USLV and much more if playing the jr miners like TRX...)


By the way, the 3 likely ending places for an ending diagonal at the end of a bear market are the centerline, the bottom of the triangle and the throwunder.  That green line mentioned above is not just some green line I drew.  It is the modified Andrews Pitchfork centerline.  That should be POWERFUL support.  The means we should get a bounce right here, right now.  But if the wave goes up and then comes crashing back down that would be a 3rd of 3rd, wouldn't it?  In fact, this latest wave down could just be 1 of 3.  If so then a bounce to the 38.2 (which just happens to be about the same value as the prior 4th mentioned above) or the 50% fib would constitute 2 of 3.  Then a big powerful wave down to bash through that centerline in the form of 3 of 3.  IF that happens then the bottom of the diagonal is the likely target, and probably a throw under too.  Losing this centerline is losing a big stronghold in the battle.

To recap:

• Markets are tricky at major turns because that is where all the big percentage gains are made and not everyone can win big.  The math prevents it and so the market will move such that it does not happen.
• The metals chart is at major, major support right now which is really, really unlikely to be broken down by the end of a 3rd wave.
• There is 10% or more on the table for a USLV bounce and it has a well defined bail trigger and it will happen pretty quickly.  I like those odds.  It could also come with upside to the top resistance line and it could actually break out and "out" itself as the 3rd wave in a new bull.
• It makes sense to wait for the tiny 5th to end, buy in and then set sell triggers below that support line by 2-3%.
• There are several red flags with the chart so don't get cocky and say "oh, 5 waves up and then a-b-c = for sure big money 3rd wave up coming".  It could happen but I give it 30% odds at this point.  A break out above the top resistance line should be confirmation of a new bull market. 
• Bottom line: good short term trade opportunity for metals bulls with potential upside from the model but only for those who manage fear and discipline well.