Silver: Is This The Final Move Lower?

Includes: SLV
by: Avi Gilburt

Again, I cannot count the number of people who noted that the actions in Cyprus were going to cause silver to skyrocket this past week. In fact, one commenter to my last article assured me that silver was going to skyrocket for that exact fundamental reason, and that I was foolish in seeing lower levels for the metals. Well, we know that Cyprus did not exactly turn out so well, yet, silver was down on the week.

Then there are those that look at the supposed resurgence in the economy and claim that silver must rally due to its manufacturing utility. But, while the economy and the stock market have been on a tear of late, and even exceeding all-time closing highs, silver has been languishing in obscurity, making those that staunchly hold to this fundamental perspective scratch their heads in disbelief.

I even saw an argument this past week that an impending deflationary bout would be positive for the metals. But, when you look under the hood of that argument, you see that this engine is actually unable to turn over. In fact, the argument is premised on the fact that while the metals will also go down during a deflationary bout - as they did in 2008/09 - they will not go down as much as other assets. So, I would not be seeking salvation from a deflationary bout for the metals.

As I said last week, and it is still applicable this week:

But, as usual, as the latest and greatest "news events" and "reasons" are paraded through the print and television media, in the end, none of it truly matters in determining the larger trend in silver. But, author after author still feel compelled to fill up page after page with such expectations supported by this specious evidence, while never recognizing that what they cling to so staunchly is never relevant towards identifying how silver will move.

So, will there be any event that will cause silver to finally rally? Yes. But, it will only occur once sentiment has hit its lowest possible levels.

Our primary perspective on identifying sentiment within a market is by using our Elliott Wave analysis. Last week, I noted that a break down below the 28.31 region should open the door to a larger decline. But, I may have to retract that statement, as not all declines are of the same caliber.

In fact, the decline that took us below 28.31 this past week did not signal that a major crack was likely being seen in silver. It was clearly not the type of crack I would expect to take it down to the 22/24 extreme region I have cited in the past. Rather, I still think it is possible that we can see a rally back to the 29.70 region before we see further declines in silver.

In our type of analysis, form is actually more important than price, as the form in which price moves provides hints to sentiment movements. So if the form of this movement continues to the downside, then I find it hard to believe that we will drop below the 26.87 level I have cited as strong support for quite some time. However, if the market were to rally early next week up towards the 29.70 region before it begins another decline, this set up can take us well below the 26.87 region, and open the door to the 22/24 region.

Alternatively, a move through 30.90 will have me focused on the important resistance zone in the 35 region. But, this is not my expectation at this time.

As an aside, I want to make sure everyone realizes that my levels in silver relate to silver mini-futures.

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have intermediate term puts on Silver