Silver Price & Gold Price…Bearish Pattern Set Up

published Sat Jun 6 for members of ElliottWaveTrader.net:  While many have been so certain that the November 2014 low was the final low for this multi-year correction in metals and mining stocks, our position has staunchly remained that lower lows will be seen.  This past week has solidified that perspective even more.

Back on May 14^th, I sent out an alert to members at ElliotWaveTrader that long positions should be closed, and profits should be banked since we have enough waves in place to mark a top to the corrective rally, even though it was much shorter than we had expected.  In looking back now, that day market the exact high to the metals and mining stocks.

However, due to the shorter corrective rally than expected, I was not comfortable enough to short the market.  That is, until June 1.  On that day, the market attempted to base, and began a rally.  However, when that rally invalidated the potential for a 5 wave move off the low, but instead provided us with a 5 wave move down off that spike high, I sent out another alert to all members that now was the time to attempt a short.  Since then, the metals and mining stocks have dropped further.

The question with which I am now struggling is the exact pattern with which the market will be heading lower. In the most immediate sense, the market could be setting up in a (1)(2)i-ii pattern, as presented in the attached 5 minute gold chart.  This would mean that we would only see a small corrective rally before a waterfall event in a wave iii of (3) to the downside.

However, I am going to add a word of caution here.  There is little I trust less in these markets than what seems to be a “clear” set up in the metals.  And, after thinking about this over the weekend, this set up seems almost “too clear” or too obvious.  Maybe I am overthinking this.  But, in the last 3+ years we have been within this correction, the market has very rarely provided this seemingly easy a set up.  In fact, it is so obvious, the contrarian in me almost wants to go long here.

Nonetheless, the pattern, as it currently presents, is strongly suggestive of trading to the short side.  But, I can assure you I will not be assuming this is a slam dunk until the next support levels I note below are clearly taken out.  As I have said for the last year, my streak in the metals has almost gone on for too long and there will come a time where I will be wrong about metals, and this may be it.  But, as I said a few sentences ago, the set-up is one in which we should be taking our shot to the short side.  And, if I am wrong, that is what stops are for.

The two charts that represent the cleanest impulsive structures to the downside are the GDX and the GLD.  The most immediate perspective for downside on both those charts is the (1)(2)i-ii set up, and we are within wave ii within those set ups, as seen in the GDX 5 minute chart.   This means that we can still expect a small rally to complete the second wave within the third wave before the heart of the third waves takes hold to the downside.  The invalidation levels for these patterns are at 19.92 in GDX, and 115.50 in the GLD.  However, should we see either of these move through their .618 retracements that could be the early warning sign that an invalidation may occur.  That level in the GDX is the 19.45 and 114 in the GLD.  Should this pattern become invalidated, I will send out a Market Update to members to outline the next resistance regions which could turn the market down in a bigger (1)(2) structure.

Silver is still the chart that makes me most cautious about the short side.  The downside structure since the most recent top is not clearly impulsive.  So, this brings me to the “prove it” stage of this decline.  As you can see, we even have a potential b-wave triangle which silver can fill out should this region hold as support.  So, silver is going to have to break the 15.50 support level to convince me we are heading to our long time 12.75 target.  In GLD, we will need to see a break of the 110.50 level, and GDX needs to break below 17.80 to signal that we are heading towards the final lows in the 3+ year correction.

In summary, we are being presented with a short set up which can take the markets down to the final lower lows we have been expecting.  Yet, I am keeping a very open mind as to the potential invalidation of this set up, as it almost seems too good to be true.

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See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-YI-20150609740.html