Roland Watson (The New Era Investor) submits: Our last update on silver was some months back as we patiently waited for the symmetric triangle of the last 17 months to finally complete. Now that the upper trend line has completed we now look forward to silver breaking into even higher and exciting ground for this New Year ahead of us -- here's a two-year chart:
Looking at the Elliott Wave analysis of this chart, our previous article of the 29th April offered the following chart to readers:
As it turned out, the only missing piece of the jigsaw was whether the final C wave would descend as a standard impulse wave or the less common ending diagonal. As you can see from the first chart, buying pressure forced the C wave into the less bearish ABCDE diagonal and then we were off to the races!
Now as we view the picture since the breakout of September 2004, what can we deduce from the current and tantalizing $2.60 surge in silver?
As we can see from the prices in the shorter-term graph, Elliot Wave suggests we are in the final leg up of the September to January impulse move. The sizes of the five component waves are $1.27 (wave 1), $0.55 (2), $1.91 (3), $1.06 (4) and $1.05 for wave 5 thus far:
Once again, despite the greater volatility in the silver price, we see price action around familiar retracement levels. For example, a 38% retracement for wave 2 suggests $7.42 when it actually hit $7.36.
Extending wave 1 by 1.618 for wave 3 gives a price target of ($7.36 + 1.27 x 1.618) which is $9.41 whereas it hit $9.27. Moreover, a 50% retracement for wave 4 suggested $8.31 but came in at $8.21.
These theoretical versus actual numbers are not as accurate as the Fibonacci retracements we saw so beautifully displayed on gold’s late 2005 impulse move. So what does that tell us? Simply that silver is a more volatile commodity than gold and can swing about in a manner that can even tax Fibonacci numbers.
But from the Elliott Wave perspective, silver is in its final wave 5 up, but where could it end? First we note that silver has temporarily formed a double top of about $9.25, with the closing action of Monday just under that level. This might suggest that the action may be over for a few weeks but the chart does not force that interpretation upon us.
Going by gold’s galloping stride, a breakout from this $9.25 level means more price action for wave 5 to come. A move the same size as wave 3 takes us to $10.12 and what a psychological boost that would be to hit double figures! A fibonacci 1.382 or 1.618 takes us to $10.85 and $11.30, which seems to good to be true in such a short measure of time!
But first silver must break through this intermediate double top. Until then, talk of double figure silver must be shelved – albeit for a short time.
Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99.
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