Upwards movement was expected for the week to a target at 14.827 – 14.887. Price moved higher to 14.646, 0.201 short of the target zone.

Summary: The correction is still most likely incomplete. Choppy overlapping sideways movement is expected for another seven days, if this correction totals a Fibonacci twenty one days.

New updates to this analysis are in bold.

MAIN WAVE COUNT

Click chart to enlarge.

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.

Click chart to enlarge.

All wave counts at the daily chart level this week will show movement since the high at 16.362 on 28th October.

Minor wave 2 would be a relatively quick and very shallow correction, if it was over at the high labelled minute wave w. Downwards movement labelled minute wave x subdivides as a zigzag on the hourly chart, so it is most likely that minor wave 2 will continue further as a double flat or double combination.

The purpose of double flats and double combinations is to move price sideways. To achieve this purpose the second structure in the double normally ends about the same level as the first. Minute wave y would be expected to end about 14.646.

If minor wave 2 is a single flat labelled minute waves a-b-c, then minute wave c would reach equality in length with minute wave a at 14.70. This is reasonably close to the 0.382 Fibonacci ratio at 14.887.

Minor wave 2 may not move beyond the start of minor wave 1 above 16.362.

FIRST ALTERNATE WAVE COUNT

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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.

Click chart to enlarge.

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 intermediate wave (B) has reached the minimum requirement of 90% the length of intermediate wave (A) at 14.2209. Intermediate wave (B) is now 1.06 times the length of intermediate wave (A), so the flat would be an expanded flat which is the most common type.

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.

At this stage, intermediate wave (B) could be seen as complete. A new high above 16.362 would invalidate the main wave count and confirm this first alternate.

Within intermediate wave (C), minute wave ii may not move beyond the start of minute wave i below 13.843.

SECOND ALTERNATE WAVE COUNT

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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. The sole reason for publishing it is to consider the equivalent to the alternate published for Gold.

Click chart to enlarge.

Because this wave count violates two Elliott wave rules I have nothing further to add. It should not be used.

TECHNICAL ANALYSIS

WEEKLY CHART

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.

Of recent weeks, strongest volume is for a downwards week. This is bearish. Of the last four completed weeks, three weeks of downwards movement came on declining volume which indicated some upwards movement was likely. Last week completed a green weekly candlestick which came with lighter volume than the prior three downwards weeks. This volume profile looks typical for a correction.

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 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.

There was also increasing volume as price rose to the high on 7th December. Thereafter, the following two downwards days came on declining volume. This volume profile is short term bullish.

ADX is strongly declining indicating there is no clear trend. A range bound trading system should be used as opposed to a trend following system.

The system outlined here uses horizontal lines of resistance and support (purple lines in the first instance). Expect price to swing between resistance and support. Look for trend changes when price reaches resistance and Stochastics is overbought, and when price reaches support and Stochastics is oversold.

At this stage, some more downwards movement would be expected from this system. It should end when price finds support and Stochastics is oversold at the same time.

The risk with consolidating markets is greater than with trending markets. Price does not move in a straight line from support to resistance, so it is choppy and overlapping. Price can overshoot support and resistance before turning and Stochastics can remain extreme for some time before price turns. It is impossible using this system to tell exactly when and where price will turn; only a general guide can be used. Stops are essential and risk management in this type of market will be the difference between profit and loss. Only experienced traders should trade a consolidating market and others should wait until a trend develops before joining in.

This analysis is published about 03:32 a.m. EST.