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Everyone knows how to make money in Silver (Published
12/01/06)
No need to look at charts of silver prices.A simple glance at the calendar
will tell you that it is winter already, so silver must be skyrocketing.Many
writers on several websites have pointed out that buying silver in the summer
and selling it in the winter is a sure and easy way to make lots of
profits.If you can't grow up to be the Federal Reserve and print your own
fiat, buying silver in the summer and selling in the winter just might be the
next best way to dramatically increase the number of FRNs in your bank
account.After all, if everyone knows that strategy, and they talk about it on
the Internet where only truth is permitted, then it must be trustworthy and
dependable.Right?
The predictable silver cycles
Wow!An easy and sure way to make lots of money!Let's take a look at the
great silver slot machine that takes a few tokens in the summer, spins for a
few months, and then gushes huge profits in the winter.
A casual glance at this chart (or the Optimist
charts section which is updated daily and weekly) from the comfort of our
Monday morning quarterback chair shows that the silver cycle has been
consistent since mid 2003.Buy silver in the summer, sell in the winter, and
capture enough easy profits to make the IRS put on party hats and pop
champagne to celebrate your good fortune.The numbers are truly impressive:
Caution: The sell point projection above is only an extrapolated
guess. This time could be different!
This is such a simple and obvious cycle that the Optimist wouldn't be
surprised if every silver investor in the world is betting on it.Since this
cycle has always been right for every year since 2003, this could be the long
sought Holy Grail among investors.Buy silver in the summer and sell in the
winter would be the first simple and easy rule that all investors can blindly
follow to make lots of money.
An alternative view with simplified Elliott Wave
Unfortunately, there are a few readers who are so contrary that they do
not believe in the Easter bunny, or Santa Claus, or a simple and easy rule
that all investors can blindly follow to make lots of money.For those few
skeptics, I would like to offer a different viewpoint about the progression
of rising silver prices since mid 2003.
With sincere apologies to the people who really know how to do Elliott
Wave properly, let me admit the limits on my knowledge of Elliott Wave theory
before applying it to the silver market.A bull market rises in three waves,
with the middle rising wave often the largest and most profitable.Each of
those three waves up is separated by a corrective wave back down to complete
a five wave bull stampede.If one of the corrective waves is horizontally flat
over time, then the other is likely to zigzag in a down-up-down pattern.That
seems like more than enough definitive detail to qualify for the wise adage
that a little knowledge is a dangerous thing, so it is time to put my
analytical toolset to work.Consider the same weekly chart of silver below,
but marked with my optimistic Elliott Wave viewpoint:
The great silver bull returned in mid 2003 when silver removed the final
claw from the 23 year old bear. The first wave ended in April 2004 with
a gain of 85% over the 40 week move. The second wave correction which
followed was a sharp initial drop and then a grinding sideways movement over
73 weeks through August 2005. A powerful third wave then exploded over
35 weeks to yield a spectacular gain of 129% from the starting low. The
fourth wave correction triggered a sharp price drop beginning in May
2006. Since then, there have been two strong rallies separated by a
sharp drop of two weeks in September 2006.
Finish 4 before starting 5
Since this bull move has so far completed only the first and third waves
higher, Elliott tells us that the bull still owes us a fifth wave up.
Although that fifth wave could be a mongrel, it could also be the pick of the
litter and it might provide all of us with the possibility of great wealth
accumulation. Before focusing on the good news about the future fifth
wave, however, it is worthwhile to make sure that the fourth wave is properly
locked up so it won't cause any more financial damage. The worse than
30% drop from the wave three high may be deep enough to complete a correction,
but the timing is troublesome. That $5 drop ended in just five
weeks. That intuitively feels like too brief a time to correct a third
wave that stampeded for 35 weeks. Also, 5 weeks seems too short to be
reasonably compared to the 73 week long second wave. The May to mid
June plunge "feels" more to me like a 4a wave down of an a-b-c
zigzag pattern. That zigzag pattern could have been completed by an 11
week long b wave up to early September and a sharp 2 week c wave drop to mid
September. If the next correction will be brief and not very painful,
then I will be much happier to hold my bullish bets in hopes of gaining a
fifth wave payoff. If the next correction will be much worse, however,
then readers may want to consider protective action.
Now is a good time for caution
The possible chart pattern that worries this Optimist is that the b wave
portion of this 4th wave may have not yet completed. If that is a
correct view, then the current 4b wave would end relatively soon in the $14
to $16 range and then be followed by a possibly brutal 4c wave plunge.
A repeat of the May to June plunge would be a possibility. Although I
have shown this possibility with question marks on the Optimist chart in this
commentary, this is not a prediction. This is just an expression of a
possible concern I see with the current chart pattern.
I'm picking up bull vibrations. Silver gives excitations.
Silver investors are responding to bullish vibrations which may be
exciting them to invest more aggressively. Now, as always, is a good
time to buy physical which can be safely stored in an accessible
location. Physical ounces stay the same regardless of short term price
fluctuations, and will certainly have more value in the future than their
cost now. However, now feels like a very risky time to use margin or
borrowed funds with futures or options or other purchases. Investors
who chase the lure of a huge gain ahead can easily make the greedy mistake of
overextending their investments in an effort to maximize that gain.
Leverage abruptly converts a shining vision into a dark nightmare of painful
proportions. Investors who get burned by the napalm of leverage are
seldom able to repair the emotional and financial damage in time to take full
advantage of the next great opportunity. An optimistic version of a
tried and true guide is that greed works best when others are fearful, and
fear should be your constant companion when others are greedy. Now is
always the right time to control your emotions so you can stay in synch with
the rhythm of the market. Cheers!
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