Silver Setting Up For Potential Big Move

Includes: SLV
by: Avi Gilburt

As we expected last week, silver has been consolidating in a corrective fashion over the last few days. It has been moving within the target range for the pullback that I have been watching. While the correction may be complete, I think it is more likely that there could still be one more drop that occurs in the upcoming week.

Silver has provided us with a shallow retracement thus far, potentially signaling how strong this pattern is at this time. My expectation would be for silver to maintain support over the 32.90 level in the futures, and would not want to see it below the 31.85 level - .500 retracement .

Also, some of you may have already noticed that the CME has reduced margin requirements on metals, and most analysts are pointing to the low volatility in the market as the reason.

"Many are still standing on the side waiting for something new to happen in the market," said Peter Fund, head of dealing at Wing Fung Precious Metals in Hong Kong.

"Comex cut margins probably because the market volatility was low and people didn't have much interest," he added.

In fact, this is the first margin cut by the CME since June 2011. Thereafter, silver experienced a 30% rise in little over a month. In fact, silver began this rally almost exactly at the same level we find ourselves at currently, and moved up to the 44 region thereafter. However, being an Elliott Wave analyst, I have to point out that the pattern is potentially more bullish currently than in was 2011, as that was a more corrective upside pattern, whereas this current pattern is potentially explosive. It is more comparable to gold when the CME cut its margin requirements in 2011. Thereafter, gold went on the most parabolic rally in its history, when it gained $400 in six weeks.

If the current pattern will follow through in silver, we will see the longer term downtrend line as the next local target within the 37 region, and moving through that will potentially explode silver up towards the 41.00-45.00 region. But, again, if the silver market moves below the 31.85 region, I would have to re-asses my analysis, so that would provide a good level under which you may place a trading stop.

Disclosure: I am long SLV.