Are We On The Verge Of A Melt-Up In The Metals Complex Or Are Lower Lows Still Possible?

First published Sat Jun 11 for members:   After we caught the lows in late 2015 and early 2016 in the metals complex, the market has been acting quite bullish.  But, “acting” bullish is not the same as resuming a bull market.  The latter is that for which we seek confirmation in the current set up.

I believe we are at a very important juncture at this point in time in the metals complex.  As we discussed last weekend, the market needed to complete a 5 wave structure off the prior lows.  We now seem to have that in place in the charts we follow.  That means that, if the market is truly immediately bullish, we will see a green wave (ii) corrective pullback take shape over the next week.  As long as we drop correctively, then I will be looking for a break out within the next two weeks or so which can launch the metals complex into the heart of a (iii) of 3 of iii of wave (1) off the lows. 

For those that do not have a lot of experience with Elliott Wave, this is the segment of the wave structure that Robert Prechter called the “point of recognition,” as it is the point in time where the market makes it clear that the bottom is likely in place, as investors begin to strongly chase price.   This is usually the point of the rally which has the strongest technicals and volume (but, a metals 5^th wave can actually exceed its technical 3^rd), and gaps are often seen during this segment of the structure.  In other words, a break out in this set up can trigger a very strong rally, which will certainly be the strongest move we will have seen since we struck the bottom.

And, the setup seems to make sense to me from a market sentiment standpoint.  As I mentioned over the last few weeks, the bears in this market are looking for lower lows and even the bulls are looking for a pullback.  It seems that most market participants are looking down to some degree.  Yet, all we have seen are very high level consolidations.  You see, when the market is truly bullish, it does not offer much in the way of retracements, as corrective waves are very shallow, which forces market participants to chase price.  This is why metals often move to strong Fibonacci extension ratios rather than the standard ones.

But, again, I am going to caution that until this upside setup triggers, we still do not have a strong confirmation that the long term lows have been struck.  But, should this setup trigger, it should make us much more confident that the lows have been struck, and a long term bull market in the metals complex has likely returned.

As far as the alternative potential, it has been marked on the daily chart in blue.  It presents this high in the GDX as a b-wave of wave ii, with a c-wave down to the 20.75-22 region as the next move in the market.  However, I cannot say that silver or GLD are terribly supportive of this potential, so I will maintain this perspective as my alternative count. And, since the pullbacks in the GDX have been quite shallow, I would look at a break of the .618 retracement of this last rally – 23.80 – as an initial indication that the alternative has a high probability of playing out.

Since I am writing this from Israel, it is now around 10ish EST, and I have to post this update before the Sabbath begins here very soon, I will not know where we will close today.  But, the possibility of a further breakout before a wave (ii) taking hold requires me to present one further possibility.  I would rather not see this, but should the market continue straight to the 28 region from here, AND NOT BE ABLE TO STRONGLY BREAK THROUGH IT, then all we would have is an a-b-c into that region wherein c=a.  That would get me quite concerned that this rally MAY only be a corrective rally, and one more lower low MAY still be possible.  While it is still a bit too early to get concerned about this potential, if the market does run directly to 28, it is something I will have to take much more seriously. 

For now, I remain cautiously optimistic that the lows are in place, and am still looking for a wave (ii) pullback to set up the more bullish scenario.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201606121293.html.