# The End of The Silver Bear Market

It's been over twenty years but the end of the silver bear market is now firmly in sight. Since the all-time high of 1980, silver has trudged a frustrating path as investors switched in increasing numbers to paper investments throughout the 80s and 90s. But just as Elliott Wave analysis confirmed the start of the decennial gold bull market back in 2001, so wave analysis points towards the sister metal of gold ready to fly out of its pen with the gusto of a pent up bull caged for far too long.

For those not familiar with Elliott Wave theory, markets subject to the psychology of herd mentality such as stocks, bonds, currencies and commodities exhibit fractal patterns of a five-wave impulsive and a three-wave corrective nature. By fractal, it is meant that the patterns are made up of the same impulsive/corrective patterns in smaller time frames, from centuries right down to minutes.

**The Long Term View**

In this article, we will be discussing Elliott Super Cycle, Cycle, Primary and Intermediate waves which run from decades down to months respectively. Reference will also be made to Richard Swannell's major statistical work at *Elliott Wave Research*. This important contribution to Elliott Wave analysis identified and collated thousands of patterns into statistical groupings to not only prove the existence of Elliott waves but to show what patterns were the most common types. With that in mind, consider the long-term silver chart below.

*Chart courtesy of Sharelynx website.*

Note first of all the appealing 5-wave impulse of the last great silver bull brought out better in this logarithmic chart. Since that bull peaked in 1980, silver has been tracing out a massive three wave corrective pattern. In Elliott terminology, this W-X-Y formation is called a double zigzag and is a pattern that connects two smaller A-B-C corrective patterns together via a central one. A duration of years may make the word "smaller" seem trite, but remember that the self repeating pattern of Elliott waves means that patterns lasting decades are composed of patterns themselves lasting years. I hope to show that the culmination of these long terms patterns now focuses on patterns that will last mere months.

Referring to Swannell's work again shows that the W and Y waves are always zigzag corrections, whilst the X wave is either a flat, zigzag or contracting triangle in decreasing order of frequency. A zigzag is a corrective wave that has the greatest price change whilst a flat correction is more of a sideways motion. A contracting triangle is composed of 5 sub waves, A-B-C-D-E each of successively smaller amplitudes and hence contracting towards an apex. The graph above displays such a predicted W-X-Y behaviour with the Y wave yet to trace out a final but short downward price movement.

**The Medium Term View**

The smaller corrective patterns also trace out their own 3 and 5 wave formations and note from the diagram above that the final Y wave is itself composed of an A-B-C pattern that is now in its final throes. We can zoom in on that final C-wave terminal pattern in the chart below.

*Chart courtesy of Sharelynx website.*

The large 'B' wave character at the top corresponds to the rightmost 'B' in the longer-term chart above. I like to call this B wave, the *Buffett wave* for obvious reasons to silver watchers! That particular Cycle B wave finished in 1998 and we are now in the final Cycle C wave of the larger Super cycle Y wave. Wave C is almost always a five-wave impulse wave and this is being played out as its Primary wave 1 finished in 1998, followed by the corrective wave 2 which ended in early 2000.

The longest impulse wave is normally wave 3 and this one ran over the year 2000 into late 2001 as silver descended to its recent low of about $4.00. Which brings us to the most recently completed wave, which was the corrective wave 4. The lower degree Intermediate A-B-C waves that make up wave 4 have completed as the C-wave takes on the recognisable impulse formation. If that is true then we can expect the final Primary wave 5 to drop to silver's ultimate bear market low.

**The Short Term View**

The short-term chart below for the last 12 months brings the smaller Elliott patterns into relief.

*Chart courtesy of Sharelynx website.*

The large number 4 in the top left corresponds to the rightmost Primary wave 4 in the previous diagram. As you can see, I have plotted it as having already performed Intermediate waves 1 (ended mid-October) and 2 (ended beginning of February), with the potentially longest wave 3 already underway. What is the time and price projection for this final low? There are four approaches to answering this question.

The first compares sibling Primary waves of the Cycle wave C in the second graph. The main rule here is that wave 3 can never be the shortest wave in an impulse pattern. We note in the second diagram above that primary wave 3 was a price move of $1.70 while wave 1 dropped $2.40. This means that the wave 5 price move cannot be greater than $1.70 since wave 1 already has exceeded wave 3. So, our maximum price objective for wave 5 from the end of wave 4 ($5.10 on June 2002) is a drop to $3.40.

Secondly, one could compare past statistical data on wave relationships. A statistical survey of past long term wave 5 actions in commodity markets can give a picture as to probable price and time movement. Referring to Richard Swannell's work again gives us the most common price movement of wave 5 as 60% of wave 3 or wave 1. This works out as a drop to about $3.70 based on wave 1 or $4.10 based on wave 3. The most probable time to complete is about 35% of the time for wave 1 or wave 3 but this takes us to unrealistic time frames. The next most probable proportion is 50% that gives a bear market end of July 2003.

Thirdly, one can look at the unfolding structure of wave 5 itself in the last chart to project time and price. Using a probable structure of wave 3 = 1.618 * wave 1, a 50% retracement for wave 4 and wave 5 = 0.6 * wave 1 gives a finishing price of about $3.60 in about October 2003 (time wise: wave 1 = wave 3, wave 5 = 0.38 * wave 1).

Finally, and this is an Elliott Wave guideline rather than a rule, it is observed that a correction wave often retraces back to the fourth wave of the lesser degree in the previous impulse wave. To be more precise, the 22-year corrective wave we have witnessed may correct to wave 4 of the previous 1967-1980 Super Cycle impulse. A look at the first chart shows that Cycle wave 4 bottomed in 1974-1975 at a price of about $3.70. Note further that the "double bottom" price of roughly $3.50 in 1991 and 1993 combines with the 1974-75 price to form what I believe will be a strong support zone of $3.50-$3.70 to finish this tri-decade silver bear market. Combining these observations leads us to conclude that a final drop to a range of $3.50-$3.90 during the mid to late Summer of this year will present a once in a lifetime opportunity to get onboard for the next silver bull market at bargain basement prices.

**The Silver Bull Market of 2003 Onwards**

And what of silver once the final wave hits the final bottom? Though it is hard to decide whether the next bull market Super Cycle is a wave 1, 3 or 5 (because silver has been fixed in price for so much of its time), one can reasonably expect that the next wave will at least reach the price level of the previous Super Cycle wave by the end of this decade. Silver investors need not be reminded what price that was. Now just as I expect gold to at least match is previous high of $850, note that it starts from a proportionally higher price than silver, that is, $255. In other words, an increase of 333 percent, but silver may start from a base of $3.50 with a target of $50 or an increase of 1430 percent! Behold, the volatility of the sister metal of gold.

**A Final Observation**

The interpretation I offer I believe to be a good one. There may be others, such as the triple zigzag formation I insert for completeness below. Triple zigzags are rare and hence I give it the second prize. Note that such an interpretation may have already predicted the bear market as ending in late 2001 at $4.00. My only reservation with that is that this is not the lowest price of the 22-year bear market. However, if this interpretation is true, then a move beyond $5.00 will be a confirmation and you should waste no time getting on board. So, good luck and good investing in this watershed year for silver!

*Chart courtesy of Sharelynx website.*

Roland Watson

tiny@cogitate.freeserve.co.uk