How easily people forget. Approximately a year ago, I published several articles calling for a top in the metals, followed by a potential decline to the 22 region. Many of you scoffed, especially after the announcement of QE-Infinity right before we hit my top target. Many claimed that one simply cannot tell what is going to happen, especially when a supposed "game-changer" like QE-Infinity is introduced.
Well, despite the "game-changer," silver did top within nine cents of my published target, and proceeded to not only drop to 22, but it fell even deeper than I had expected at that time.
So, this past week, we had the Fed announce a "no-taper" event. And, people assume that metals heard what the Fed said and immediately began to spike up without any preliminary warnings. Well, think again. We had ample warning early that morning of the impending rally later that day.
The metals are simply following through within a larger corrective pattern since its 2011 high and the Fed has not been able to affect this decline no matter how much QE they throw at it. Yet, people still expect the next Fed announcement will change that. And, that, my friends, is the definition of "insanity;" doing the same thing over and over but expecting a different result. So, I will continually implore you to ignore the Fed, ignore the news, ignore whatever you had deemed as the driver of metals, as that has only caused you a lot of pain for the last two years.
Following each spike after a Fed announcement for the last year has also caused a lot of pain. When the metals began their correction two years ago, I said that no matter what the Fed will do, it will not be able to cause the metals to rally to new highs until they complete their larger correction. And, each and every time the market provides an initial reaction to the Fed's comments with a spike higher, all the bulls go into overdrive and immediately declare the correction over. But, there is nothing that has given us any indications that a lasting bottom is in place yet.
Based upon some of the comments people posted to my last article, some of you assume that I must be wrong because we did not immediately head to new lows. But, clearly, you have forgotten what I said in my last article. So, I will warn you again, if you do not understand how to follow my analysis and take cues from the market, then trading silver is not for you. Furthermore, I also explained that since silver was in a larger degree corrective pattern, there can be many twists and turns taken before the new low is actually seen.
Also, I want to explain that the analysis I provide in my articles on Seeking Alpha are for a general guide and are not meant to provide you with each twist and turn in the metals. Since silver is so volatile, it has to be followed closely during the week to understand what each twist and turn means in the grander scheme.
Furthermore, since I am quite busy during the week, I am unable to also post responses to questions during the week about each twist and turn that silver takes. My primary responsibility is to my subscribers, for whom I and another metals analyst (Arkady Yakhnis) answer questions and provide analysis and charts for silver all day in our Trading Room at Elliottwavetrader.net. So, please do understand if I am unable to respond to posts during the week at Seeking Alpha, while I do try to make myself available on Sunday.
Last week, I warned many of you to read what I say rather than make broad assumptions about what you think I say. Well, specifically, I said:
"So, the question is now if we will see new lows in the metals? The answer is that it is quite likely. But, we will be watching for one more opportunity for silver to set up for another rally over 25 over the next week before it is able to make new lows. In Elliott Wave parlance, this means that the top of the prior rally was an a-wave, with this decline being a b-wave, which would set up a c-wave rally to another high over 25. In fact, such a structure can take us well over 30. However, the bad news of that structure would be that we would almost definitely see new lows after that. In other words, without reaching new lows over the next month or so, any rally that takes us over 25 before a new low is hit will only set up a bigger short trade.
The ideal support region for such a b-wave would be within the .618-.764 retrace of the August rally, which is 19.85-20.85."
So, I said that if silver was unable to break down below the cited support region, another rally will likely be seen. But, rather than actually reading what I said, based upon the posts to my last article, some of you automatically assumed that my analysis last week was wrong and was "affected" by the Fed's announcement.
But, I have news for you. I foresaw the rally before the Fed even came out with its announcement. And, as some of you may be rolling your eyes at this time, allow me to show you what I sent out to all my subscribers at Elliottwavetrader.net at 8:48AM on Wednesday morning - which was 5 hours before the Fed made its announcement:
"While it was a nice short trade down into this region in the metals, I am going to raise the caution flag right here and now. We have a clear count that can tell us that the metals are bottoming in this region today. The count is also supported by positive divergences on the 144 minute chart, and we are in the support zone we have been watching since last week. Therefore, I am going to be looking for some shorter term long positions, and will maintain VERY tight stops on those longs."
And, by the way, I noted in my Trading Room that I was selling that short term long position at the end of the day on Wednesday. The pattern did not substantiate holding that position beyond Wednesday. And, by the looks of the action on Friday, it was clearly the appropriate decision. The upcoming week will tell me whether I need to exit my intermediate term shorts entered in the 25 region, or even go long for another short-term trade.
The point I am still trying to make to you is that news fits into the cycles that are identified within the wave structure that we analyze. R.N. Elliott long ago said "At best, news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend." In effect, what Elliott is saying is that news does not "cause" the cycles, as most believe. Rather, news falls within the cycles. While this clearly challenges the common perceptions of what moves markets, I would suggest that all those reading my words at least open their minds to this possibility, and it may very well change the way you invest forever.
As far as the pattern in silver this past week, it was evidencing an approaching bottom in silver just over our cited support region. It, therefore, told me that it was not likely that we would break that support on the first try. But, the only way one would be able to know this before the Fed announcement would be to know how to read what the market was saying before the announcement. And, it was speaking loudly and clearly enough that it put us in long positions in SLV and GLD hours before the rally which was seen that day, which were sold at the end of the day. In fact, the S&P 500 was also displaying a pattern which had me sending out Wave Alerts in the morning on Wednesday - hours before the Fed announcement - looking for a rally from 1693ES to 1720ES. So, it was one heck of a trading day in reading the markets.
Right now, silver is at a critical point. While it still looks like it has lower to drop based upon the technicals and the pattern we were left with at the end of the day on Friday, I am not going to trust that it is directly heading to new lows sooner rather than later until it breaks last week's lows. The a-b-c pattern to which I was referring last week is still clearly on the table as long as silver remains over its low from last week.
Therefore, if silver is unable to break last week's low, it has the opportunity to rally back to the 24.10-24.20 region. Maintaining below that region and starting a strong decline would likely have me viewing this upside pattern as completed, and we are on our way to new lows.
However, if it is able to break out over that region, then it is likely heading to 26.50, with the potential to hit 28.15 if we see a strong move through 26.50. But, again, that will only be a bigger shorting set up, as it is from that top that silver will then head back down to hit new lows. Yet, a break out over 28.15 would have me begin to consider that the lows for silver have been seen, and a rally to 60+ is in progress (which is not at all highly likely just yet, in my humble opinion).
However, if silver is able to break down below last week's low, that is a strong signal we are heading to the minimum 17.76 region target. But, remember, the support region I cited must still be broken to confirm this immediate target.
Again, I am going to warn all readers that unless you read what I write very carefully and understand how to decipher the intra-day movements, trading silver is a very dangerous game for most people. And, right now, there is high risk for whipsaw. So, while I try to provide you with the possible scenarios that I see as of the close on Friday, there are clearly other possible short-term patterns which may arise which I am not able to foresee. But, following the general support and resistance levels I have cited should keep you in the game.
And, for those of you that trade GLD, as crazy as it sounds, I have a lower target in the 98 region which may yet be hit once the market breaks down below GLD123. So, it seems I have some nice targets well below where we currently reside in both metals which I still expect can very well be hit before a larger degree rally takes hold.
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 own SLV LEAPS, as well as intermediate term puts.