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Saturday, March 26, 2011

Weekend Update 3/26/11

Vacation earlier this month and business issues since then have kept me from posting a lot, hopefully things will ease up soon.

The ES almost certainly saw a bottom to it's correction on Thursday Mar 17.  The pattern from the top on Feb 18 into the Mar 17 low counts best as a double zig-zag.  Since then it looks like it's put in a series of wave 1 - 2 sequences of ever lower degree, so it's quite possible that the ES could accelerate upwards in the very near term.

ES hourly

ES daily

An alternate count here is that the Mar 17 low was only the 1st leg in a more lengthy correction to the preceding seven month bull market.  A likely possibility given action since that low is that the ES is tracing out a flat type correction. In that scenario prices would get turned back in the area of the mid February highs which would mark the conclusion of the 2nd "B" leg of the sequence.  Following that prices should plummet sharply in the final "C" leg of the pattern.  Although this alternate doesn't seem likely given the strength of the rally since the Mar 17 low, it became more plausible recently with rumors of possible Fed Reserve tightening and thus higher interest rates.

ES daily - alternate count

Silver
Silver futures (SI - regular, not mini) has become my favorite recently.  The ATR on that contract is currently running around 1.15, which means the average range from high to low on any given day is about $1.15 per ounce, and with the SI contract at 5000 ounces that means that the dollar value of that range is $5,750 per contract.  So if you can catch just half of that daily travel you can pocket $2,875/contract.  Not bad.  The margin on SI is pretty steep at over $11k/contract, but if you've got the equity and can stomach the risk the ride can be fabulous.  For lower risk the mini-silver contract can be traded, symbol is "YI" and I believe that contract is for 1000 ounces.  But it's a thinner market which could potentially effect the ability to fill an order, plus it trades less hours than the SI so there's the danger of adverse movement in the SI causing a gap open against a YI position which you are powerless to do anything about.  So in my mind the risk is higher with the mini even though the contract size is much smaller.

Silver has been on a bull market tear since last fall, moving up from a low of around $17.50 to a high last Thursday of $38.18.  My preferred count is that SI put in a Minor Wave 5 (red) high at $36.745 which marked the conclusion of an Intermediate Wave 3 (purple) sequence dating back to a low from July, 2009.  If so, that Minor W5 traveled a distance almost exactly equal to a .618 multiple of Minor W3.  The corrective sequence that followed also confirmed that idea in the sense that it was a flat which alternates with the zig-zag type Inter W2 correction of mid 2009.  Thus the low of the correction on Mar 15 would be Intermediate W4, and SI has been tracing out Intermediate W5 since that time.  It's also important to note that Intermediate W5 may have concluded at Thursday's high - Intermediate W1 in 2009 traveled $4.525, and at Thursday's high Intermediate W5 had traveled $4.615 - awfully close to equal.

SI - daily

 The alternate in SI is that Minor W5 is extending and that the early March top and subsequent correction were only Minute Waves 1 & 2 of Minor W5.  If that's the case, there's a LOT more upside left in SI.  Doesn't seem plausible, but it's certainly possible.

SI daily - alternate
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