How Much Of A Pullback Can We Expect?

First published Sat Jan 21 for members of ElliottWaveTrader.net:  Bulls and bears in this complex probably need a Xanax by now.  This market has swung so dramatically over the last several years that many are probably so whipsawed that they don’t know which way is up.  But, for now, the market is setting up in a manner to take us up even further in 2017, and potentially even further than many believe. 

As I noted last weekend, silver has finally joined the party, and has completed quite a full 5 waves up off the lows, and potentially even more.  And, as stated last weekend, since everyone was looking for a pullback coming into this past week, the market did just the opposite and continued higher early in the week.  So, can we see more of a pullback in the coming week?

Well, I will say that a further pullback in silver would provide us with a really nice inverted heads and shoulders in the silver chart.  But, again, that just may be too easy.  You see, when the greater market sees the potential for any type of heads and shoulders patterns, especially bearish ones, they rarely play out as most expect.  Most of the time, they simply set up the bears on what seems to be an initial trigger of the pattern by a break of the neckline, only to see a strong reversal catching all the shorts by surprise as the heads and shoulders invalidates and turns the market up strongly.  This is what I warned about months ago in the GDX, and exactly what happened in the complex over the last month.

But, since inverted heads and shoulders are not as closely followed, it does have a better shot at working out.  Moreover, as standard heads and shoulders do not usually have a high probability of playing out, one that is supported by an Elliott Wave count usually has a much higher probability of triggering.  And, if we do see this inverted heads and shoulders playing out, it will be supported by a strong bottoming structure in silver, followed by a (1)(2) impulsive bullish structure, as presented on the 144-minute chart.  The support for such a wave (2) pullback in silver resides between 16.10-16.50.

As far as the GDX is concerned, our main support resides between 20.50-21.65.  As long as any further drops maintain over that support region, we must view the market bullishly, and setting up to head back towards the highs of August 2016.  Moreover, any immediate break outs through the 24 region, with strong follow through over 25.10, without any further pullbacks early in the upcoming week, would suggest we are on way back to the August high sooner rather than later.  Such a break out would be confirmed by silver breaking out through the downtrend line on the 144-minute chart, which is approximately within the 17.50 region.

In GLD, the relevant support resides between 110.50-112.65.  And, as long as we remain over that support, we need to continue to view this market bullishly.

So, while we can certainly see more downside consolidation in the upcoming week in the metals complex, and even have micro set-ups for it to occur, my suggestion is to be positioning yourself on the long side of the market as long as we remain over the relevant support cited above.  A strong break out in silver over the 17.50 region is the main signal for which I will be watching to suggest that the consolidation is over, and we are on our way back to the August 2016 highs before the next larger consolidation I expect later this year, potentially in the spring of 2017.

See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-201701231473.html