Silver: Look Out Above?

by: Avi Gilburt

It seems that everyone "knows" that silver is going lower. In fact, almost all of mainstream media is certain that lower levels are going to be seen in the metals. But, when everyone in the mainstream is so certain about lower levels, it is usually the time for the market to shake them out of that notion, just before it proves them right.

As I noted in my recent gold article, Dave Kranzler published an article on Seeking Alpha recently, wherein he did a nice job in compiling the sentiment numbers across many of those tracking market sentiment. He cites the Market Vane and Hulbert Gold Stock Newsletter Index as two primary sources, which have presented record low levels of bullishness in the market. And while the level of bearishness now registering in the metals market may not yet be "the low," it very well could substantiate a counter-trend rally to work off some of the bearishness.

From my pattern work, as long as silver futures maintain support over the 22.70 level, I still can see a rally up towards the 26 region before another drop ensues. But since I do not have greater than 80% confidence in this potential from a trading perspective, I would not suggest this trade to most readers in the Seeking Alpha community, unless you are an accomplished, experienced, and nimble trader. However, a move up to that region could very well set up a high confidence, low risk, shorting opportunity.

So, my perspective from last week has not at all changed:

As for where this market is going, I am not swayed at all by the recent action in silver, and, in fact, it has bolstered my perspective of another drop coming to a new low. Although, at this time, I can see the possibility of a move up to the 26 region before the next leg down takes hold, I still do not view us in a larger bullish set up at this time, and my analysis last week remains my primary perspective, which means we can still see a 20/21 handle on silver on the next decline.

On another note, some of you have questioned why I have had the 22 region as a potential bottoming target for well over a year and now that we have hit it, why am I potentially looking lower? Well, when we do Elliott Wave analysis, we look for several market conditions to line up to suggest that we have hit a point of a change in trend. First, we need a target calculated using Fibonacci mathematics. Second, we need a completed 5 wave structure into that target level. And, third, we need supporting technical indicators substantiating that we have the correct wave count.

While I have had the 22 region calculated well over a year ago as a potential bottoming target for silver, the wave pattern has not completed 5 waves into that level, nor have the technicals supported the notion of a completed pattern. It was for this reason that I have had to expect levels lower than the 22 level for a bottom in silver.

I hope this provides the insight that many have been requesting. Ultimately, I approach charts every day from an objective perspective, and will always listen to what the market is saying, rather than impose my will on the market, which we all know is a fool's game. Therefore, I will not dig my heels into a position, especially when I do not have evidence that my initial target will provide us with a significant change in trend.

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 am looking to re-enter a short position on a rally in silver. But, I do have my long term long position hedged.