Metals Complex Pushes Us To The Limit

For those that understand how metals trade, it is quite clear that they move to extremes.  And, the main reason this is so is due to the driver of the metals market being emotionally based.  Yes, you heard me right.  The driver is not market crashes, or worldwide debt, or inflation, as so many have tried to sell you upon.  Rather, emotion is what drives this market, and when you can understand how to track such emotion, you can have a better handle on how it may move.  This is the main reason why it often pushes us to the edge of our expectations and is driven to extreme movements.

This past week, I noted how we were going to begin the week at an extreme, and the complex was on the precipice of either a breakdown or breakout.  Our primary expectation was that it was going to break down into a corrective phase, and, thus far, the market has followed through. 

But, we are not out of the woods just yet.  It is still “possible” that the markets may continue to break out, so let’s go through what we need to look for in the coming week.

Again, the GDX presents us with the clearest picture of the market, so I will begin there.  As noted last weekend, it would take a strong move through the 28 region to signal we are heading to the 40+ region sooner rather than later.  But, the GDX turned down right at the top of the market pivot on our daily chart, and seems have begun a corrective retracement.  What supports this perspective is that the rally off the low struck on Wednesday this past week began in corrective fashion, was followed by what seems to be a triangle consolidation, with an impulsive (c) wave rally continuing thereafter, all of which I am counting as a b-wave rally.

My preference is to see the GDX maintain below the 25.80 region in the upcoming week, and then drop down below 23, which I will count as the (a) wave in the blue wave ii. 

As you can see, the alternative count would suggest that we are already in wave 2 of wave iii, but I will need to see confirmation of that perspective before being able to adopt it.  If GDX would be able to strongly exceed the 25.80 region, and then rally through the 26.60 level, that would be an initial indication that this “correction” has completed, and we will be watching the all-important 28 region for cues as to whether we are heading directly to the 40+ region.  Again, this is not my primary expectation, but I do have to respect the manner in which the metals move, having much experience in this arena.

As far as GLD, that too seems to be completing its b-wave rally, which may have one more push higher in the coming week before it “should” turn down. As noted last weekend, resistance is between 125-126, with only a strong break out through the 129/30 region suggesting the correction is over and another major leg up is in progress.

Lastly, with regard to silver, I am still in between several potential counts, as you can see from the chart, and which has been outlined over the last several weeks.  The 16.90-17.10 region remains support and upside is still open as long as we do not break that support.  Should that support break, then we are either in a i-ii, 1-2 structure (blue count), or the outside chance remains for a lower low (red count).  And, as I noted before, should we see a break of support, I will discuss the other counts more extensively in a mid-week update.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201605081261.html.