Earlier this August, I shared with you the map for silver with three possible options of how the price could emerge. I labeled them with three different colors for you to distinguish them easily.
Let’s see below how did you vote for the future of the silver price.
I didn’t doubt that the “Pessimistic” (red) scenario would be the least liked option as silver bears are rare these days amid the powerful bullish move in the metal’s price, that had preceded the ballot. The polar “Optimistic” (blue) scenario, which implied the non-stop move of the silver price to the upside to tag the former top of $21.13, ranked second. Indeed, it was a close call as the poor man's gold, surprisingly rocketed in a week after the post to hit the multi-year maximum at the $19.65. It could be a winning stake, but right after that the price dropped hard to close the first week of September below $18. And here comes the accurate prediction, that was picked by the majority as you had chosen the “Conservative” (green) scenario, which implied the setback of the price ahead of the final home run. Again, it was an amazingly prophetic call, thanks for sharing your votes with all of us here on the Blog.
I updated the map for you in the weekly silver chart below, let’s have a look there.
Chart courtesy of tradingview.com
As time goes by, the picture gets clearer as more and more options have been eliminated. I erased the red and blue labeling and added the new annotations to stress your attention to crucial chart structures.
The overall map hasn’t changed as the price is still in a substantial four-year consolidation within a $13.65-$21.13 range. It started with a strong vertical move up at the end of 2015, which is labeled as a green AB segment. It was robust and quick as it took only 7 months for the price to elevate from the bottom to the top of the range, as mentioned earlier. We are in the second leg of it, which is labeled as the green CD segment. It is way longer than the first leg as this November, it will take one year, and I hope we will finally hit the ultimate target.
The recent painful setback from the multi-year top could be worrisome for some traders, but we were ready for this move almost two months ago as it was within the “Conservative” scenario, which was telling us about the upcoming correction in the silver price. It was based on the historical pattern, that I spotted for you in the first leg up.
I highlighted the similar consolidations on both segments with orange ellipses. As we can see here, the current consolidation is larger than the previous one. The difference is 57 cents, and it is natural as the recent rally was too sharp, and it created excessive volatility of the price in both directions. This is how structural chart analysis allows us to predict the price behavior as we were prepared for this outcome and now we can adjust our price target using the same approach.
Each consolidation just makes a pause in the prevailing direction, and we should expect another silver rally soon. I highlighted the historic rally first in the AB segment with the green curved up arrow as a sample for the foreseen move up. It pushed the price for a hefty $5.30 to the upside last time. I added this gain to the current valley of $16.90 to adjust the target, which is now being set to the $22.20 mark. This is well above the former top target of $21.13; it is a pleasant rise.
The game is on now between the recent low of $16.90 and the apex of the second leg down within the current consolidation at the $18.74. The former level should be broken up to proceed to the upside. If we will see another drop below $16.90, then this consolidation is not over.
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Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
The preceeding day before the last day, is an"engolfing" pattern TO THE DOWN SIDE !!! I believe it is going down before it goes up !!!
Because of market manipulation by the banks through the Fed and the CFTC, commodity prices are doomed to a pre-arranged range. If the control mechanism breaks down, commodity dollar value will become irrelevant.