This weekly silver chart immediately suggests the current five overlapping upward waves are part of a corrective pattern, needing an additional move up. Expectations for new highs in silver depend upon a corrective ABC pattern having developed through the past 12 months, with the completion of the corrective (B), in grey, above recent highs, or possibly a new high.
But even this would serve to trap both breakout-buying bulls and short-covering bears as the pattern reverses in a (C) wave down of a contracting triangle. We should see this wave down materialize in another three-wave decline and the damage could be limited to the $11 range. If a triangle is the working pattern, silver will not take out the June lows of $9.60 per ounce. At present we don’t think the pattern will unfold in a “flat,” but if does, then the decline in wave (C) would find support closer to, or below, the $10 area and the correction would unfold in a five- wave decline.
A converging triangle, like the one labeled on the chart in 2004-2005, would be revealed by contracting highs and lows in an absence of major catalysts to inspire a larger trend. Notice that the end of the ’04-’05 triangle marks the start of the huge rally into the May highs.
Overall, the chart indicates silver can see higher highs if it is willing to endure some downside first. A rally straight to new highs will likely result in a reversal.
But, if silver is in a larger correction from this February’s high, then at least one more leg down will be necessary before the dramatic new highs, suggested by the fundamentals, are seen.
Dominick Mazza is a technical analyst and founder of Tradingthecharts.com, which specializes in using Elliott Wave, Fibonacci, cycles and proprietary indicators. Joe Nicholson is an independent analyst and the resident metals specialist at Trading the Charts (www.tradingthecharts.com).