Silver About to Break Out
We wrote last summer in a GOLD-EAGLE editorial that the dominant long-term and interim silver cycles were converging around the October time frame and that a major long-term cyclical bottom would occur in silver at that time. True to form, the cycles did in fact bottom with 3-4 weeks of our forecasted timeframe and the strong V-bottom spike reversal last fall, not to mention the bullish parabolic bowl forming in the weekly chart, provides overwhelming proof that the long-term downward trend in silver is over and the trend is now turning up. We should see another breakout within days as silver attempts a move toward the benchmark $5 level in coming weeks.
In our study of chart patterns, we have discovered a variation of a classical chart formation that contains tremendous significance from both a time cycle point of view as well as a supply/demand perspective. The pattern, which we have dubbed the "time wedge," combines both price and time, and is a variation of the classical chart pattern known as the wedge, whether in the ascending or descending phase. Time wedges-when they appear-usually take several years to form, often over a decade. When they do form, however, they are highly instructive and permit extraordinary accuracy for predicting major reversals in the stock or commodity they appear in. In the case of silver, a rather large time wedge extending from the 1997 highs to the 2001 lows is visible in the long-term weekly chart of silver. This time wedge pointed to precisely the September-November timeframe of 2001 and it was one of the tools we used to forecast silver's ultimate bottom and reversal. It is instructive to note that silver futures bounced off the upper part of this four-year time wedge, using it as a fulcrum to springboard off $4 and etch its way toward $5, then $5.50. The $5.50 level should definitely be reached by fall if not higher. We cannot emphasize just how bullish silver's 6-month outlook is.
Silver futures have finally come into their own and are about to catch up with gold in terms of upside movement. Silver's dominant short-term and interim time cycles are once again coming into alignment and have lagged the gold market's cycle alignment by a period of several months. But good things come to those who wait. Accordingly, prepare to go long July Silver. A move above $4.80 will open up enormous upside potential in coming weeks. The third and fourth weeks of May and all of June should be an overall bullish timeframe for the white metal.
The most prominent feature of the July Silver chart (daily bars) is that of a 6 week bullish triangle pattern that started forming in April between $4.40 and $4.80. This triangle is a product of the 4-week and 8-week cycles and is about to resolve to the upside once the 8-week cycle bottoms this week. Already it can be seen that silver is straining the upper boundaries of this triangle just waiting to burst forth with force and momentum as its finally commences the first big leg of its emerging bull market. Looking a little further back you can see a much bigger triangle between $4.80 at the upper boundary and $4.10 at the lower boundary. That adds greater weight to the bullish argument for silver. The minimum upside implications of this triangle project to approximately $5.35, give or take.
Confirming the bullish outlook in silver futures, several leading silver mining shares are extremely bullish and will be among the top-performing percentage gainers in this year's stock market. Among them will be Pan American Silver (PAAS), Silver Standard Resources (SSRI), and Apex Silver Mines (SIL). Another top-performing silver mine will be Coeur D'Alene (CDE). These stocks and others like them will be excellent trading vehicles for the treacherous months ahead in the broad market. The broad market's loss will be silver's gain.
After waiting what seems an eternity, silver bugs finally have reason to be bullish on the white metal again. We predict that Year 2002 will be among other things, the Year of Silver.
Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy. The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment. He is also the author of numerous books, including most recently “Kress Cycles.” For more information visit www.clifdroke.com