Silver's Decline is Almost Over
Silver futures (SI) have taken a spectacular tumble since 2011, losing more than 60% of their value, and they surprised many would-be long traders in 2013 by falling below the support that was implied by the 2008 price high.
Presumably, some traders were initially treating the decline as a large fourth-wave correction, and those traders "knew" that a fourth wave could not extend below the top of the prior first wave--i.e., the top of the price action in 2008. Those traders were wrong, of course. Looking at the form of the decline since 2011, silver's breach below the support from 2008 suggests that it is tracing something larger than a mere fourth-wave correction, even though the structure of the decline is corrective. The three-wave nature of the decline can be seen in the long-term chart below, which reflects our primary scenario for silver.
During the decline, price has stayed contained by the downward-sloping modified Schiff channel, as shown on the monthly chart below, and it now has resistance nearby in the form of the channel boundary and the 2008 price high at $22.88, which gave way last year. From its current area, price should attempt to reach the target range of $11.93 to $14.20, as shown by the shaded box on the chart.
Between current price and the target area, there are two prominent support levels at $17.12 and $15.87, which silver will have to contend with. In addition, an analysis of the 64-week cycle in precious metals (not shown here) suggests the most likely time for a low will be in late October or early November. Based on those factors, the weekly chart below shows what we believe is the most likely path to a low.
The detailed Elliott wave analysis that produced those targets can be found at our website.
Traders should be aware that gold and silver are likely to make their respective lows at approximately the same time, possibly even within the same hour. In addition, silver is more susceptible to a drastic spike low, because its price tends to be more volatile, and it represents a thinner market. With silver, a spike low has a chance of reaching the target area shown earlier on the monthly chart. Although the spike low may not feel like a safe buy in the moment, it probably will be a good opportunity to shop for value.
This article is an excerpt from our forthcoming Market Forecast e-book.