Wednesday, January 2, 2013

Is There Another Silver Shake-Out Coming?

The long year-plus consolidation in the precious metals may be coming to an end soon. And it behooves us to be mindful of how past long consolidations ended with silver, because it tends to be very fractal, that is, self replicating. The wave counters (my derogatory name for Elliott Wave enthusiasts) seem to be thinking that the recent down move of the last month isn't done, and they target about a $26 price before a very large wave up to "well north of $50" as one of them says. They've been calling silver right lately. Silver is EW friendly as well as fractal.

Well, I tend to depend more on fractal than Elliott Wave. So I took a look at the past long consolidations in silver, and found some things of interest. The first consolidation was in the sleepy beginning of the bull market back in 2003 (click on images to enlarge):

Here we see a descending, flat bottom triangle with 4 bottoms. What followed?

It presaged the first monster climb of the bull market. Then in 2005, there was a similar long consolidation:

The same flat bottom triangle with 4 bottoms, only the 4th bottom went lower than the others on huge volume, a "shake-out" where the impatient, short-term weak hands are shaken loose from their holdings at precisely the wrong time. What followed?

That's right, weak hand remorse. There also was a long consolidation in 2007:

Again with the flat bottom triangle and 4 bottoms with the big shake-out at the 4th one. What followed?

The same pattern with the same result. So how is the current long consolidation of over a year looking?

Pretty much the same as the past ones. The wave counters are targeting 26 in this move down, which would also be a more discouraging low than the previous 3 for maximum shake-out, same as the others. If you are a holder of silver or gold, and we get this kind of move, do not be surprised.

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