Last week it was stated the trend was down but a correction was expected to turn up, indicated by a green daily candlestick.
Summary: A small correction against the downwards trend may have begun. The most likely target is the 0.382 Fibonacci ratio at 14.887. Thereafter, all wave counts expect more downwards movement to new lows for Silver.
New updates to this analysis are in bold.
MAIN WAVE COUNT
This wave count was previously presented as “Wave Count #3”. It is now my main preferred wave count.
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.
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.
All wave counts will show daily charts from the price point marked at 17.779 which was 18th May, 2015.
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.
Intermediate wave (3) is now underway. This wave count for Silver is the equivalent of the bear wave count for Gold.
If the session for the 18th of November closes as a green daily candlestick, then minor wave 2 would be confirmed as having begun. It may end about either the 0.382 or 0.618 Fibonacci ratios. It may not move beyond the start of minor wave 1 above 16.362.
This wave count is very bearish. When minor wave 2 is complete a third wave of a third wave down is expected to show a strong increase in downwards momentum.
FIRST ALTERNATE WAVE COUNT
This 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.
There are 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.
Upwards movement for intermediate wave (A) is 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.
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) at 14.2209. This minimum has now been met. 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.
Intermediate wave (B) is still incomplete and looks like it is unfolding as a zigzag. Along the way down, minor wave B is likely to turn up as at least one green candlestick or doji on the daily chart, and most likely it will last a few days. Minor wave B may not move beyond the start of minor wave A above 16.362.
SECOND ALTERNATE WAVE COUNT
This second alternate wave count is identical to the first main wave count up to the high labelled primary wave 4. It sees primary wave 5 as underway. There are only two possible structures for a fifth wave within an impulse: either an impulse (main wave count) or an ending diagonal (this second alternate wave count).
My sole reason for publishing this idea is to see what the equivalent wave count to Gold’s alternate would look like for Silver. Here the problems are the same and worse. This wave count violates two Elliott wave rules.
If primary wave 5 is unfolding as an ending diagonal, then the diagonal should be contracting because the fourth wave at 2.379 is shorter than the second wave at 2.482. But the third wave length at 3.796 is longer than the first wave at 3.190.
From “Elliott Wave Principle” by Frost and Prechter, 10th edition, page 88, rules for diagonals: “In the contracting variety, wave 3 is always shorter than wave 1, wave 4 is always shorter than wave 2, and wave 5 is always shorter than wave 3.”
Further, another rule states “Going forward in time, a line connecting the ends of waves 2 and 4 converges towards (in the contracting variety)… a line connecting the ends of waves 1 and 3”.
On the daily chart (below) I have drawn a parallel copy of the 1-3 trend line in cyan and placed it on the end of intermediate (2). This is done to illustrate that the diagonal trend lines slightly diverge; they do not converge.
This structure violates these two rules of a contracting diagonal. It also would violate the rule of wave lengths for an expanding diagonal: intermediate wave (4) is not longer than intermediate wave (2).
I am very uncomfortable with publishing a wave count which violates Elliott wave rules. Due to the multiple violations I have no confidence in this wave count; it is not Elliott wave.
Because this wave count violates two Elliott wave rules I have nothing further to add. It should not be used.
Click chart to enlarge. Chart courtesy of StockCharts.com.
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. As price fell, from the end of October, volume has risen. The fall in price is supported currently by volume.
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.
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.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Downwards movement is well supported by rising volume. ADX indicates a downwards trend is in place.
Price found a little support at the lower red horizontal trend line. Price is now finding resistance at that line.
On Balance Volume is bearish. It moves lower with price. However, there is now some bullish divergence between price and OBV. OBV has made a strong new low, but price has not. This indicates some weakness in price and supports the idea of at least a correction against the downwards trend developing about here. OBV works best with trend lines though. When it shows divergence that is a weaker indicator (it doesn’t always work).
Today there is some small bullish divergence between price and RSI. Price has made a new low, but RSI has moved slightly higher. This too supports the idea of a correction against the downwards trend developing here.
Two green doji indicate indecision, a balance between bulls and bears. Silver is in a small correction against a downwards trend.
This analysis is published about 01:00 a.m. EST.