John: On Friday, July 15, the spot price for Silver closed at $39.07 an ounce, just a few cents off its monthly high of $39.35. This morning it has moved higher again, just slightly above $40 as of 4:30 am Pacific. In the last decade Silver has risen from a low of $4.01 in 2001 to a high of $49.82 in 2011, a massive move of 1,142%.
This morning we look at a 10-year monthly chart to analyze how Silver has traveled this journey to get so high in such a relatively short time.
Looking at the 10-year monthly chart we see that late in 2001, Silver reached a low of $4.01. It then continued to move sideways in a trading range between $4 and $5 until mid-2003 when it started a major move to the upside. In early 2004 it reached a high of $8.35. The move from $4.01 to $8.35 constituted Wave #1 of the Elliott Motive Phase #1.
Almost immediately, Silver retraced from the 100% Fibonacci level to the 38.2% level. Silver then traded sideways until mid-2005, forming the down Wave #2. Then Wave #3 of Phase #1 took Silver to a high of $15.20 early in 2006. Prices then retraced to the 61.8% level to form Wave #4. Wave #5 was formed when Silver rose steadily to a high of $21.44 in March 2008. Then the Crash came, taking the price down to $8.40 in October 2008 which formed the downward Corrective Phase #1.
The $8.40 level marked the start of the 5 Wave Motive Phase #2 with Wave #5 being completed when Silver reached its high of $49.82. Note that Wave #4 is very short (red candle at $30). The Corrective Phase has been completed with a retrace down to $32.30 and Wave #1 of Motive Phase #3 has just started.
On the chart I have placed 5 consecutive Fibonacci sets with each set showing its 161.8% target level. Notice how various Fibonacci levels coincide with wave pivot points. Also the target of Fibonacci set #5 on the right hand side agrees exactly with the high point of of $49.82. The Fibonacci set is a great tool for analyzing charts.
Looking at the indicators:
The RSI is now below the overbought region and pointing up. There is room for it to allow Silver a good move to the upside. Note how the RSI is above the 50% level except for the Crash period. This shows the inherent strength of the primary trend.
The Slow Stochastics (SS), a momentum indicator like the RSI, displays similar characteristics. The %K and the %D are approaching the 50% support level. The CMF shows buying pressure has been increasing since the beginning of 2010 – looks very bullish.
Outlook: The outlook for Silver is extremely bullish. The chart shows it is starting a new 5 Wave Motive Phase and is well supported by strong buying pressure, a powerful primary trend and well-positioned momentum indicators.
