Can The Rally Continue?

Amazingly, more and more people are becoming bullish of metals and miners again.  So, are we now setting up the final decline due to the increased bullishness?   I think so.  But, nothing suggests to me as of the time of my writing this update that the top of this rally has clearly been seen before we drop to those lower lows.

Last weekend, I was on the lookout for a b-wave pullback.  Specifically, I noted that “we can see a b-wave pullback which maintains over 106.85GLD and 13.40GDX before we head higher.”  During the past week, as GDX was declining, I noted in our Trading Room at Elliottwavetrader.net that we were likely setting up to break below 13.40, but the structure does not suggest that we are likely breaking down yet to lower lows.  Rather, I lowered my support level to the 13 level, and, in fact, bought a long trade – as noted in the Trading Room – when GDX was at 13.33, which I exited just over 14. 

Furthermore, while silver was the clear tell that we would head lower last week, as it exhibited a micro 5 wave decline off the prior week’s, silver never completed a larger degree 5 waves off that high.  I even sent out updates noting that if silver would have completed that larger degree 5 wave move down, it would have turned me much more defensive.  But, silver never completed that 5 wave structure, and has kept the door open for a move higher before we drop to lower lows.  But, in order for silver to open that door wide open, we will need to see a move through the 15.25 level before we break 14.69.  As long as we remain below 15.25, silver still has a potential bearish pattern in place.  So, as I noted in my Live Video at Elliottwavetrader.net on Friday, I was going to take a small short in silver with a stop at 15.26, which, at the time, was risking about 8 cents on that trade.

When I view the GLD, I have to note that we have come to the top of what may be a (b) wave in the final run to lower lows.  But, I have no clear 5 wave move down off that high.  Should I see one more drop towards the 109.25 region, I can make an argument for a leading diagonal down, which if followed by a corrective rally, would setup a potential short attempt with a stop placed at last week’s high.  However, should we see last week’s high taken out to the upside, with follow through over 112, then my minimum target becomes 114, with the potential to extend up to the 117 region.

As far as the GDX is concerned, the after-hours action from this past week’s high can arguably be counted as a 5 wave decline.  Since it was after-hours low volume action, it is hard to be certain that it was, in fact, a 5 wave drop.  So, I attempted a short trade on GDX from the Friday rally high, but did not get an impulsive decline from that point, which had me exiting that trade after making some “lunch money.” In order for GDX to convince me we are heading to lower lows, we will need to break 13.60, with follow through below 13.20.  That would have me looking for a target of 11.  However, if we can hold over 13.60, and take out last week’s high, we are looking to strike at least the bottom of our target box on our daily chart in the 15.50 region.

So, the market is giving me some mixed messages right now as to whether this rally can continue.  But, it certainly has left us with strong guideposts, as noted above, as to what we can expect if certain levels are breached on both the upside and the downside.  This leaves us with pretty good trading cues for the upcoming week.  And, as I have noted before, once the market makes it clear which of the targets are going to be struck, I will send out a Market Update to all members at Elliottwavetrader.net.

See charts illustrating the wave counts on the GLD, GDX and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-YI-20150928840.html .

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.