The great silver bull returned in mid 2003 when silver removed the final claw from the 23 year old bear. The first wave ended in April 2004 with a gain of 85% over the 40 week move. The second wave correction which followed was a sharp initial drop and then a grinding sideways movement over 73 weeks through August 2005. A powerful third wave then exploded over 35 weeks to yield a spectacular gain of 129% from the starting low. The fourth wave correction triggered a sharp price drop beginning in May 2006. Since then, there have been two strong rallies separated by a sharp drop of two weeks in September 2006.
Finish 4 before starting 5
Since this bull move has so far completed only the first and third waves higher, Elliott tells us that the bull still owes us a fifth wave up. Although that fifth wave could be a mongrel, it could also be the pick of the litter and it might provide all of us with the possibility of great wealth accumulation. Before focusing on the good news about the future fifth wave, however, it is worthwhile to make sure that the fourth wave is properly locked up so it won't cause any more financial damage. The worse than 30% drop from the wave three high may be deep enough to complete a correction, but the timing is troublesome. That $5 drop ended in just five weeks. That intuitively feels like too brief a time to correct a third wave that stampeded for 35 weeks. Also, 5 weeks seems too short to be reasonably compared to the 73 week long second wave. The May to mid June plunge "feels" more to me like a 4a wave down of an a-b-c zigzag pattern. That zigzag pattern could have been completed by an 11 week long b wave up to early September and a sharp 2 week c wave drop to mid September. If the next correction will be brief and not very painful, then I will be much happier to hold my bullish bets in hopes of gaining a fifth wave payoff. If the next correction will be much worse, however, then readers may want to consider protective action.
Now is a good time for caution
The possible chart pattern that worries this Optimist is that the b wave portion of this 4th wave may have not yet completed. If that is a correct view, then the current 4b wave would end relatively soon in the $14 to $16 range and then be followed by a possibly brutal 4c wave plunge. A repeat of the May to June plunge would be a possibility. Although I have shown this possibility with question marks on the Optimist chart in this commentary, this is not a prediction. This is just an expression of a possible concern I see with the current chart pattern.
I'm picking up bull vibrations. Silver gives excitations.
Silver investors are responding to bullish vibrations which may be exciting them to invest more aggressively. Now, as always, is a good time to buy physical which can be safely stored in an accessible location. Physical ounces stay the same regardless of short term price fluctuations, and will certainly have more value in the future than their cost now. However, now feels like a very risky time to use margin or borrowed funds with futures or options or other purchases. Investors who chase the lure of a huge gain ahead can easily make the greedy mistake of overextending their investments in an effort to maximize that gain. Leverage abruptly converts a shining vision into a dark nightmare of painful proportions. Investors who get burned by the napalm of leverage are seldom able to repair the emotional and financial damage in time to take full advantage of the next great opportunity. An optimistic version of a tried and true guide is that greed works best when others are fearful, and fear should be your constant companion when others are greedy. Now is always the right time to control your emotions so you can stay in synch with the rhythm of the market. Cheers!