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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
  • Is Silver Headed Lower Once More As Part Of A Massive Five Wave Cycle? 0 comments
    Jul 28, 2011 2:06 PM | about stocks: SLV, GLD, SIVR, AG, GPL, SLW, CDE, PAAS, HL, AXU, SSRI, CEF, SIL
    aaronbasile.wordpress.com/2011/07/28/is-silver-headed-lower-once-more-as-part-of-a-massive-five-wave-cycle/

    Silver, like gold has been in a bull market since the earlier part of the 2000′s decade and aas everyone knows it has recently peaked just below $50 before a large correction brought it all the way down to $33. Silver has since recovered and is hovering near $40 on the back of the political posturing over the debt ceiling. Silver and gold serve as safe havens versus currency debasement and the risk of a default that could send the OTC derivatives market into another Lehman-type phase should the debt ceiling not be raised. Most believe that the debt ceiling will be raised – let’s face it, the politicians like Obama, Reid, and Boehner will not only not be automatically counted out for re-election, but they would go down as the stooges who couldn’t come up with a simply compromise that had catastrophic repercussions on the global economy. I think that whatever happens, they will manage to get the debt ceiling hiked and that will cause precious metals prices to come down off of the recent highs.

    I have recently talked about gold and the three year trend that it is extended from and how it is even now following its own typical cycles going back to 2008 and I have used that as an example as to how a correction in gold would coincide with a debt ceiling agreement. However, it also appears that silver may have even larger cycles that could coincide with the debt ceiling and an agreement could serve as the catalyst for another large move down in silver. From a purely technical standpoint, this is very possible.

    Those of you who have been following my recent work may recognize this chart. I have stated that I think that silver ultimately gets back to this trendline on another move down. However, it is not clear if this trendline will be the low, or just a major support level on a large move down that may occur due to an event (however big it might have to be) that sends silver crashing to new 18 month lows. It sounds crazy, and I hate to sound like the bear, but let’s just look at the charts.

    Going back to 2004, silver has gone through four waves that have extremely similar qualities. From late 2003 to April of 2004, silver had a run from $5 to $8, which is a 38% leg up. Immediately after peaking, it collapsed to $5.50, a 32% loss. Throughout the next 2 years, it consolidated in a tight trading range and did not make a new high. Then in the summer of 2005 it began another move up, this time it was from about $7 to a high of $15 (over 100%) in the spring of 2006. Towards the end of spring it collapsed to $9.50 – a 37% loss. For the next year it consolidated in a tight trading range before bottoming out in the summer of 2007 around $11.75.

    From there it rocketed all the way up to $21 in early 2008 for a roughly 90% gain. Once again, immediately following the peak, it fell from $21 to $16 within a few short weeks for a 25% loss. Silver then consolidated for a few months then peaked again just shy of $20 which was only 5% off of the high. Following that last peak came the financial crisis, where silver lost nearly 60% as it dropped all the way to $9.00 once again.

    After bottoming out at $9, it recovered under the QE program and traded higher for the next year or so before consolidating within a tight trading range beginning in late 2009 and ending in summer of 2010. After Jackson Hole, silver shot from $17 to $30, then after a brief pullback, it made a high of $49.50, or a 290% gain from August 2010. This is where it becomes interesting. As we know, silver fell from the highs of nearly $50 all the way to $33/oz for a 32% collapse in less than two weeks. What amazes me is how unbelievably similar the chart looks now as the move up, consolidation, and collapse from 2007 to late 2008. Silver has recently consolidated after the initial blowoff top this past spring, and has made another move higher to about $40 on the back of the debt ceiling argument. It is still 20% off of the highs but the pattern is almost a mirror image of the on made in 2008. If silver is part of a massive five wave cycle, then there is a possibility that silver falls back to levels not seen since 2009-2010. Determining the price target is difficult but there is support at $30, $26, $21, $17, and $15.

    Once again, it does sound crazy, but based on the chart patterns, such a move is on the table. However, if silver were to collapse to $17 and then recover once more – perhaps to $25-$30, the next move could be “the big one” as many in the precious metals community have been talking about. Then again, maybe silver doesn’t collapse to $17 and instead only falls to $25 and then recovers to $33 before making another 200-300% leg up which could even take it to over $100/oz.

    In any case, its food for thought. However, there is more to this theory than just spot silver’s movements. A huge credit goes to Seeking Alpha and Financial Sense Contributor David Urban for finding the first two charts that I am about to show, the rest I found after researching this further.

    This chart is of Silver Wheaton (NYSE:SLW) which is commonly known as a benchmark silver stock and it is clearly showing a head and shoulder reversal on the weekly chart.

    Silver Standard (NASDAQ:SSRI), another benchmark silver producer is showing the exact same pattern. Again, credit to David Urban for these two charts, the rest below are ones I found after seeing SLW and SSRI.

    Coeur d’Alene (NYSE:CDE) also a top silver mining stock, SHS top is clear as day.

    First Majestic (NYSE:AG) is showing a sloppy, but valid SHS reversal. The pattern is valid because the high of the head is higher than the high of the right shoulder and the neckline is ascending instead of descending, which would void the pattern. This pattern is sloppy, but the patterns in the other miners confirm AG’s chart.

    Great Panther Silver (NYSEMKT:GPL) also has a sloppier pattern but again, it is confirmed by the other head and shoulders reversals shown above.

    Head and shoulders on Alexco (NYSEMKT:AXU) as well which is another up and coming silver producer.

    Global X Silver Miners (NYSEARCA:SIL) another perfect pattern.

    Endeavour Silver (NYSE:EXK) is a near mid tier producer and again has a slightly ascending, but valid pattern.

    This topping pattern is not limited to one class of silver assets, there are juniors, seniors, mid-tiers and ETF’s that are showing the head and shoulders top. This coincides with the analysis I have on silver’s long term cycles and these charts could be potentially be leading indicators for the next leg in the silver bull market.

    Does this all play out? Maybe, or maybe not. Like I have said before, the best patterns are failed patterns, and the fundamentals for silver are most certainly favoring the bullish side, but I feel that the size of these moves should not go undocumented since they coincide with current events and with the movements in spot silver over the last 7 years. At the very least, I think we can all agree that they are definitely incredible patterns and are worthy of recognition.

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