Silver Market Update
Originally published September 11th, 2011.
The picture for silver looks increasingly ominous and it is suspected that we are close to a major breakdown that will lead to a violent plunge, of a similar nature to that which occurred early in May. The picture has darkened over the past week with increasingly bearish action by gold and a major dollar breakout, that was predicted on the site a few days before it occurred in the article The Great Dollar Shocker.
The year-to-date chart for silver shows the rally from the May - June lows to be insipid and weak, especially given the sparkling performance by gold over the past several months, but perhaps this is not so surprising given the "shock and awe" treatment meted out to silver speculators early in May, some of whom understandably appear to have adopted a "once bitten twice shy" approach to silver ever since. However, there is an old saying that "hope springs eternal in the human breast" and, knowing this, silver's cheerleaders have been shepherding their surviving flocks back into silver in recent months, but sadly our latest charts suggest that they are likely in for another fleecing and they may not survive the next one.
While we have had some trouble with the wave count over the past several months - most Elliot wavers get lost in a labyrinth of excessive mentation, which is why, as practical speculators, we don't bother with wave theory much and instead focus on more usable indicators like support and resistance levels and volume - it is now looks like a very dangerous wave pattern is completing in silver - the B-wave of a large A-B-C correction, and if this interpretation is correct, which is being made a lot more likely by the increasingly bearish action in gold and the dollar breakout, we could be about to witness a devastating C-wave crash in silver, which will wipe a lot of silver speculators. With the price and its moving averages now considerably more tightly bunched than they were before the May smash, there is the potential for the price to break down rapidly through these moving averages, despite their positive alignment, take out the support near the May - June lows and enter into a near vertical descent.
On its 6-year chart silver looks like it is completing a classic large top formation. First it rose vertically to hit its most overbought levels late in April since the good old days of the Hunt brothers back in 1980. Then a panic selloff hit, triggered ostensibly by hiked margin requirements (of course, its being insanely overbought had nothing to do with it), all of which was accompanied by the huge volume characteristic of a top. Lastly, the johnny-come-latelies are corralled into silver by proliferating cheerleaders to drive the weak rally back towards the highs that we have seen over the past couple of months. There is just one instalment left to go, the drop down to the support shown at the lower boundary of the top area, the failure of that support, and the final devastating plunge that leaves hordes of silver speculators hung up in the large top area and smarting from massive losses. clivemaund.com subscribers are prepared for this with our Complete Toolbox for Capitalizing on a Gold & Silver Plunge.
Should be an interesting few weeks!