Silver has been in a bear market since April 2011.

Summary: The bear market must be assumed to remain intact while price remains within the bear market channel.

From an Elliott wave perspective, there are still at least three possible wave counts for Silver at the weekly chart level, and at the daily chart level multiple possibilities remain viable. Unfortunately, at this time the Elliott wave picture is unclear for Silver and probably will remain so for some time. Regular technical analysis should be used to determine which wave count is most likely.

New updates to this analysis are in bold.

WAVE COUNT #1

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This first wave count sees a 5-3-5 complete downwards for primary waves 1, 2 and 3.

The channel (maroon) drawn about this downwards movement is drawn using Elliott’s first technique. Draw the first trend line from the lows labelled primary waves 1 to 3, then place a parallel copy on the high of primary wave 2. Primary wave 4 may find resistance at the upper edge of the channel.

Primary wave 2 was a deep single zigzag. Given the guideline of alternation expect primary wave 4 to be shallow and a flat, combination or triangle.

The difficulty with this wave count comes with the multiple structural possibilities for primary wave 4. It is impossible to tell which structure will unfold, only that it is most unlikely to be a zigzag or zigzag multiple. If it is an expanded flat, running triangle or combination, it may include a new price extreme beyond its start, so it may include a new low below 13.983.

At this stage, the idea of a combination may be eliminated at the daily chart level. The reasoning for this is explained underneath the daily chart.

Intermediate wave (1) lasted a Fibonacci 5 weeks; intermediate wave (2) was 22 weeks, just one more than a Fibonacci 21; intermediate wave (3) was exactly a Fibonacci 144 weeks; and, intermediate wave (5) was 31 weeks, three short of Fibonacci 34.

Primary wave 2 lasted 15 weeks. Primary wave 4 is expected to be longer lasting because zigzags are quicker than combinations, triangles and even flats. Primary wave 4 may total a Fibonacci 21 or 34 weeks, give or take up to three weeks either side of these expectations.

Primary wave 4 may not move into primary wave 1 price territory above 32.343.

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All wave counts will show daily charts from the price point marked at 17.779 which was 18th May, 2015.

Upwards movement for intermediate wave (A) again looks like it may be a completed double zigzag. This is termed a “three”, a corrective structure.

If primary wave 4 is a triangle, then one of the five sub waves may be a double zigzag. This may have been intermediate wave (A) of a triangle.

If primary wave 4 is a flat correction, then intermediate wave (A) must be a corrective structure and may have been a double zigzag.

Primary wave 4 may not be a combination, if the first structure is a double zigzag. Within multiples each corrective structure of W and Y (and Z if there is one) may only themselves subdivide as simple corrective structures (labelled A-B-C, or A-B-C-D-E in the case of a triangle). The maximum number of corrective structures within a multiple (excluding the joining X waves) is three. And so to label multiples within multiples extends the maximum beyond three violating an Elliott wave rule. It is a very common mistake made by those new to Elliott wave (and sometimes by those who have been using Elliott wave for years). If members find work online purporting to be Elliott wave, this is one of the markers to look out for to see if it will be of any use.

If primary wave 4 is unfolding as a flat correction, then within it intermediate wave (B) must reach a minimum 90% length of intermediate wave (A). Intermediate wave (B) must be a corrective structure and may make a new low below the start of intermediate wave (A) as in an expanded flat. There is no lower invalidation point for this wave count at this stage for that reason.

If primary wave 4 is unfolding as a triangle, then intermediate wave (B) within it has no minimum requirement, must be a corrective structure, and may also make a new low below the start of intermediate wave (A) as in a running triangle.

WAVE COUNT #2

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Primary wave 4 may already be underway. Primary wave 3 still has a close Fibonacci ratio to primary wave 1. This wave count and the first wave count both have similar Fibonacci ratios, so there is no advantage nor disadvantage between them in this regard.

Within primary wave 3, intermediate wave (1) lasted a Fibonacci 5 weeks; intermediate wave (2) lasted 22 weeks, one longer than a Fibonacci 21; intermediate wave (3) lasted 40 weeks with no Fibonacci duration; intermediate wave (4) lasted a Fibonacci two weeks; and, intermediate wave (5) lasted a Fibonacci one week.

Primary wave 4 may be over halfway complete as a regular flat correction. Within the flat correction, intermediate waves (A) and (B) both subdivide as three wave structures and intermediate wave (C) is incomplete.

The channel here is a little different, a best fit, so not drawn using Elliott’s technique.

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This wave count is changed at the daily chart level.

A triangle unfolded over the last week. The triangle may not be a fourth wave correction because it would overlap first wave price territory. The triangle may not be another second wave correction because a triangle may not be the sole corrective structure for a second wave. Therefore, the triangle must be a B wave.

This means that a zigzag upwards has just completed. This indicates intermediate wave (C) may be unfolding as an ending expanding diagonal.

Within an ending diagonal, all the sub waves must subdivide as zigzags.

The diagonal is expanding because minor wave 3 is longer than minor wave 1. Minor wave 4 must overlap back into minor wave 1 price territory. Minor wave 4 must be longer than minor wave 2 and must end below 15.331. The normal depth for a fourth wave of a diagonal is between 0.66 to 0.81 the third wave, so this gives a target range between 15.069 to 14.775. Minor wave 4 may not move beyond the end of minor wave 2 below 14.403. Minor wave 4 must subdivide as a zigzag.

WAVE COUNT #3

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Primary wave 4 may be complete and primary wave 5 may be underway.

Primary waves 2 and 4 exhibit perfect alternation and good proportion: primary wave 2 was a deep zigzag lasting 15 weeks and primary wave 4 was a shallow combination lasting 24 weeks, 1.618 the duration of primary wave 2.

At 11.1 primary wave 5 would reach 0.382 the length of primary wave 1.

Although this wave count is labelled #3 it is my preferred wave count. I am presenting them in the order in which I developed each, not in order of preference. This wave count is preferred primarily for the reason that there has been no technical confirmation of a trend change from bear to bull for Silver.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) above 17.779. A breach of this invalidation point would now also require a strong breach of the bear market channel, so this invalidation point should not be moved any higher. When that channel is breached that should indicate a trend change for Silver from bear to bull. At that stage, only bullish wave counts should be seriously considered.

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The upper edge of the maroon channel is copied over here from the weekly chart. It should provide resistance if Silver is still within a bear market. If that trend line is clearly breached, then this wave count should be discarded before the invalidation point is passed.

Intermediate wave (2) may be complete as an expanded flat correction. Within intermediate wave (2), minor wave B was a 1.32 length of minor wave A, nicely within the normal range of 1 to 1.38.

Minor wave C may be an ending expanding diagonal, the fifth wave extended higher during the last week. There is no Fibonacci ratio between minor waves A and C.

Ending diagonals require all sub waves to subdivide as zigzags.

I would have a little confidence that intermediate wave (2) is over when there is a downwards day on increased volume. At that stage, I would calculate a target for intermediate wave (3) to end. To do so today would still be premature. The target for the whole of primary wave 5 remains the same at 11.1 (weekly chart).

TECHNICAL ANALYSIS

WEEKLY CHART

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Silver has been in a bear market since April 2011. I am adjusting the length of the weekly moving average, so that it shows where this bear market has been finding resistance. The 89 week (a Fibonacci number) Simple Moving Average works well for this bear market. If that is breached by a weekly candlestick, it would be strong indication that Silver has changed from bear to bull.

Overall, while Silver has been in a bear market, volume is declining which indicates the bear trend is maturing, a change to a bull market is closer. Volume will not tell us exactly when that change comes though. It is a warning sign only.

Of recent weeks, strongest volume is for a downwards week. This is bearish.

On Balance Volume remains below a long held trend line. This trend line is somewhat shallow, repeatedly tested, and reasonably technically significant. While OBV remains below that trend line it will remain bearish. This week OBV has again found resistance at that line, turning downwards. The strength of the line is reinforced, a further bearish signal.

RSI shows strong double divergence with price over a long time period (pink and green lines on price and RSI). While price made new lows RSI failed to make new lows. This indicates weakness in downwards movement and is bullish. Because this divergence is double and over such a long time period it is highly technically significant. This indicator is often leading (anticipates a trend change). The first two bull wave counts must be seriously considered for this reason.

The regular technical analysis picture is unclear at the weekly chart level. A trend change will come and RSI is indicating it may come sooner or have arrived already. It needs to be confirmed by price, and a break above the blue bear market trend line would be full and final confirmation of a trend change.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Up until today as price rose volume overall fell. Price has been finding support at the 21 day EMA and closing close to the 200 day moving average.

The volume spike for 28th October is bullish. However, the long upper shadow and small body on the candlestick is bearish. On its own this volume spike is not enough to indicate Elliott wave counts 1 or 2 should be favoured over 3.

ADX has turned upwards today indicating a new upwards trend may be beginning. Again this needs to be followed by more upwards movement from ADX for another couple of days at least for confidence at this stage.

On Balance Volume remains bullish, remains above the red trend line, and is strongly turning upwards indicating the upwards movement in price is supported by volume.

RSI is not overbought. There is still room for the market to rise.

Overall, the short term daily chart technical analysis is bullish. The longer term technical analysis is also indicating a bullish trend change either has already occurred or shall occur soon. This technical analysis overall favours Elliott wave counts 1 and 2. But while price remains within the channels drawn on the weekly Elliott Wave counts, it must be accepted that we do not have technical confirmation of a trend change from bear to bull for Silver.

This analysis is published about 05:20 a.m. EST.