Although the price for silver futures (represented by the ProShares Ultra Silver ETF
(NYSEARCA:AGQ) and the ProShares Ultra Short Silver ETF
(NYSEARCA:ZSL)) is typically more volatile than for gold, technical analysis of the former can sometimes be predictive for the latter. We are likely to see that phenomenon again in coming months as both metals try to make new price lows. In particular, recent price signals in silver should put gold traders on alert to watch for a surprise near a support area that many traders are probably watching. Our analysis also suggests that silver price should fall relatively farther than gold, and thus it may offer better opportunities for trades.
A possibility we have suggested in the past for gold is that the decline from the 2011 high might represent an Elliott fourth-wave correction, setting the stage for a rally into 2015 or beyond. If that is correct, then gold can’t slip below $1,103 without overlapping with what we believe was the first wave. Even for those who don’t use Elliott methods, $1,103 represents a very important area of support. However, there’s an alternative analysis for gold that would shake off most traders who try to use that area as support. The decline from 2011 may represent just the first part of a much larger, longer correction -- something other than a fourth wave. If that is the case, then there is no requirement for the $1,103 level to hold. In fact, it is likely to be broken before gold sees any sizeble move upward.
This year’s price action in silver lends more credence to the idea that gold may be tracing out an “A” wave of a larger correction. The 2013 low for silver breached the limit of $22.88 for its own price decline to be a fourth wave. Thus, silver’s decline from its 2011 high must be part of a larger structure, not part of a big five-wave advance. Based on examining the wave structure within the decline, we have projected a price target area from $11.93 to $14.20, as shown on the monthly chart below.
An analysis of a weekly chart offers a more refined set of support levels and price targets. Silver is currently putting pressure on the $20.48 support level, and we expect it to cascade through one or more of the support levels at $17.53, $15.44, and possibly $12.77. In addition, one of the empirical cycles for silver on a weekly chart suggests it makes sense to look for continuation until sometime in the early part of 2014. A chart showing support levels and a more detailed Elliott Wave count for silver can be found in an extended version of this article on our website
This article originally appeared on Trading on the Mark.
No positions in stocks mentioned.