What Do The Fireworks In Metals Mean?

First published Sat Jun 18 for members of ElliottWaveTrader.net:   This past week saw some very exciting movement in the metals.  There was something for the bulls and the bears alike.  But, for now, the bulls still have the edge, at least in my humble opinion.  Yet, the price action and sentiment have many looking much lower now, and has scared many of those that were quite bullish coming into the week.

But, for anyone who has experience trading metals, you know that price movements in this complex are often quite violent.  And, if you are not mentally prepared for such violent moves, which often occur at Fibonacci turning points, then you have no business playing in this arena.  It simply has to be accepted, since the metals are one of the most emotional trades out there.  But, just because you see an emotional price reaction in the complex does not change the overall perspective as presented by the wave structure.   So, as I said in the trading room on Thursday, when everyone was getting emotional due to the strong drop, “put on your big boy pants, get your head in the game, and let's follow this through.”   Emotion is the last thing you want to be trading upon when you are dealing with the metals.

For now, the metals complex seems to be providing us with a consolidation near the highs, to which we refer as a i-ii, 1-2, (i)(ii), which is seen in the GDX and silver, while GLD is simply in a i-ii, 1-2.  This means that as long as this pattern is not broken, we are still setting up for the heart of a 3^rd wave up. 

Whether the market takes advantage of this set up is nothing upon which I can guarantee, but I can point out that this set up is clearly in place, as we have been tracking it for some time.  And, until it actually does trigger this set up, I will remain hedged in my own account, but will maintain a very tight leash on those hedges.  And, as you can see on the GLD and GDX charts, the alternative I have adopted is that we have only completed a larger wave I off the lows, and a wave ii retrace will now take hold.   However, I do have to note that this really does not apply well to the silver chart, whereas it is “possible” under the GDX.

So, ultimately, I remain cautiously optimistic still.  Many have asked me why I add the “cautiously” to this statement, and it is simply because the market has not yet provided us with confirmation that the long term lows have been struck.  I am still waiting for the heart of the 3^rd wave higher to take hold to put that to rest, at least from a high probability perspective.  And, as I have been saying for months, the relevant major break out point in the GDX is the 28 region, which is the 1.00 extension off the lows.  Breaking through that strongly, and with high volume, provides us with strong evidence that the market is in the heart of a 3^rd wave up, and targeting the 35-37 region for wave 3 of iii.  At that point, we can have confidence that the long term bottom to the market has been struck, at least from a probabilistic standpoint which I gauge to be at an estimated 70%+ once the break out does occur. 

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201606191297.html.