May 042011
 

The recent sharp swings in Silver has caused consternation among traders and investors alike. What is the outlook for this metal?

In the last Elliott Wave Analysis of Silver, posted on 24th April, we saw a case made out for a test of the $50 level. It reached 49.51 and boy! whatever happened there is a trader’s nigtmare, especially if he was caught long! In just 4 days Silver has lost over 18%. Could this have been anticipated? What can we do from here? Where is Silver going in the medium term? These questions are uppermost in the minds of traders. Let us address them one by one.

If you were using Elliott Wave Analysis, then you would have had anticipated a top near the $50 level without too much trouble. (We had actually done that in this blog). However, I did not warn you that the top was already in for the short term because I am not watching Silver on a daily basis. Look at the first two charts shown here. When the extended fifth wave covered a distance equal to the distance travelled by waves 1-3, any serious trader would think of taking profits. What is more important is the fact that any correction that follows the completion of an extended fifth wave is expected to be BOTH sharp and deep. This phenomenon has been covered extensively in this blog (see Fifth wave extensions can make you RICH!).

What can Silver traders do from here? First of all, be prepared for a move down to the $34 level. That level is the 2nd wave of the extended fifth. Will we get there directly? This is not so easy to answer, but there are supports at 40.10 and 39.70. There is a reasonably good chance for a bounce from either of these levels, but lookout for selling to emerge again around 44.60. Only above 45.60 will I breathe easy if I was caught long above 49! Yes, it is that serious, buddy.There is always some hope that we will get the so-called 2nd retracement of the extended fifth wave, a move that can take us back to the top of the move before a collapse happens. But we cannot rest on hope. We need to manage any open positions with care. So keep an eye on the resistances mentioned above.

What is the medium term outlook for Silver? As I said before, I am currently working on the paradigm that we have just finished the 3rd wave, and the anticipated dip to $34 area will be the fourth wave. Once that correction is finished, we should look for a fresh move higher. That rally might run out of steam near the $50 again if there are not enough reasons for the commodity run to carry on. This blog will surely update you on how to trade that rally when it starts. For the time being, though, let us concentrate of navigating the downmove to $34 without getting killed.

Finally, I recently read an interesting article on Silver by John Navin, and thought you might find some of his writings in Forbes interesting. Enjoy. Ramki.

  18 Responses to “Silver Outlook: Elliott Wave Analysis”

  1. Thanks for the kind words, Ramki.

  2. Thank you very much for valuable information.
    As per your silver outlook dated May 04, 2011. what could be the 2nd retracement resistant level?

    • Hi Rajesh, If we don’t get a quick recovery now, we should use any pullback to 41.65 to lighten up on stale longs. Above 42.60 is more encouraging for those looking for a deeper pullback prior to the sell-off to 36/34 lvls

  3. dear sir thanks for your forecast on silver i’ve a question on it “was it a truncation 5th “! and can we expect much more below then 34$ if it was a correction of larger degree

    • Ajay, this is the question that I was asking myself (about the downside – not whether it was a 5th wave truncation. You will only get this type of a sell off after an extended 5th wave). Honestly, the only way to confirm a bottom is when we see a 5-wave move up. This means anyone who is trading the next move in Silver needs to be both agile and sensible to run for cover if any of the rules of wave principle is violated. I will necessarily have to keep my reply open-ended at this time because of the nature of the markets. There are times when a move is an open and shut case, and other times when it is best to approach it tentatively.

  4. Great analysis, as always sir. Just wanted to add one more thing, that how every asset class maintains it’s movement well within the diktats of Summation series. Once having achieved a top of $50, a possible wave 4 retracement all the down to 34 (a summation series number) becomes a target to bear in mind, before a final fifth wave push close to or a couple of percentage above $55 in another 5 waves.

  5. Great analysis!

  6. Ramki,
    Thank you so much for your great anaysis! I am one of the traders that got caught on silver at $50. Rode it all the way down expecting a bounce! crushed! Could you post a chart of what your e-wave expectations for silver going forward. Trust me, it would greatly be appreciated! Thank you, Kent

    • Hello Kent, We have ALL done such mistakes at some point or other in our careers. Just put this loss down as the price of learning that stops at predetrnined levels are an absolute must. Another point, you don’t always have to make back the money only on Silver. Look for other low-risk ideas also. Good luck. Ramki

  7. Dear Ramki,

    Again. Consider a diferent labeling for the upside from 2002. Is possible that we’re not in a impulsive cycle wave of 5 waves since then. There is another labeling that take this upside as a hugh wave B that is still correcting the selloff from 1980 in a regular flat pattern. If this is correct, the impulse has finish with 3 waves (abc of cycle B) and we are unfolding in a enormous wave C that will aproach levels of $5 per once in several months or couple of years.

    I’m bearish for now. If we return and aproach levels between $ 45-46 per once, the odds for the ortodox labeling will guide the silver market.

    Good luck my friends

    • Hi Carlo, As I have said elsewhere, one can come up different counts for he same move, especially when it is still unfolding. What matters is whether we are able to make money with our count. It is more important to get the direction right. Secondly we necessarily have to make adjustments along the way in terms of distance the move is going to cover. So don’t worry too much about the far away target. If you can capture even a portion of the anticipated down move you should be overjoyed. Good luck.

  8. Hi,

    Greetings !
    Two identical charts one is Crude oil (which got breakdown eventually) and Silver chart which is also into the range. Whats your view on Silver as of now, may we get a break down eventually in the silver as well, or one more leg upside is remain. Appreciate if u can through some valueable study on silver. Thanks

  9. please ,forcast wave analysis of silver

  10. Dear Ramki,
    Please give a guidence for silver
    Please sir,

  11. Hello Mr. Ramki,

    I would also appretiate if you could post a new update for Silver.
    Have we ended the correction from April’s top or is there still some room for more downside?

    Thank you,
    Jose.

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