Silver was hovering around the highs of $16 an ounce just a week ago, but suddenly fell by a dollar and is currently hesitating near the $15 mark. Could this sharp decline be predicted and if yes – how? We cannot tell you how others might have done it, but our way is not by anticipating economic news, nor is it by assuming the impact of geopolitical or any other kind of events. Instead, we prefer analyzing price charts from the perspective of the Elliott Wave Principle. This was the forecasting method we used in “Silver Seems to Be Running Out of Fuel” on March 22nd. Here is how the forecast looked like back then.
As visible, the 4-hour chart of silver was showing a five-wave impulse to the upside from 13.64 to 16.13. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. To us, that was more than enough of a reason to believe that the price of silver was likely to reverse to the south very soon. We thought that perhaps the bulls might have a little power left for another swing high near 16.20, but as the next chart will demonstrate, they turned out to be even weaker the expected.
Almost immediately after the forecast was published, the bears took the wheel. Seven days later, they are still charge. This is another excellent example of the Wave principle’s ability to save traders money by warning them for an upcoming reversal before it is too late. However, there are signs that silver might regain positive bias for a while. The 30-minute chart explains why.
As the chart shows, the decline from 16.13 to 15.04 consists of five waves. So, same rules apply. Just as an impulse on the 4-hour chart is followed by a correction in the opposite direction, so is an impulse on a 30-minute chart. But this time the impulsive sequence points down, which means the three-wave retracement should be to the upside. The relative strength index is also supporting this claim, by showing the typical divergence between waves 3 and 5 of (A).
If this is the correct count, silver is supposed to start recovering in wave (B) soon. However, this is not the time to go long, because the bulls might get tired very soon and once they do, wave (C) should take the price of silver below 15.00.
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