Correction May Continue Through September

First published Sat Sep 10 for members of ElliottWaveTrader.net: The market action this past week started out quite strong, and raised many hopes.  However, since I do not have a clear 5 wave structure confidently developed off the recent lows, I have to put hopes aside, and view the market in a dispassionate manner.  And, that dispassionate manner sees strong potential for another drop in the complex.

Last week, I noted that I can become aggressively bullish again should we see a clear 5 wave structure complete off the recent lows.  While I can make a colorful attempt at classifying the recent rally in the metals complex as a 5 wave structure, I have to be honest in my analysis and state that, to me, it did not look like a clear 5 wave structure.  So, the immediate bullish count will only be an alternative to me at this time, which the market will have to prove to me.

That means I have moved into the current market action representing a wave ii in the larger GDX count, whereas silver and gold still seem to present as a wave 2 in wave iii.  However, should the GDX be able to strongly break out impulsively over the recent highs, then I will view everything in the heart of a wave iii higher.  This is my simplified perspective.

Now, before we move into the individual charts, I want to note something I have suggested in the past.  For those that remember back to 2015, I was suggesting we would see a paradigm change in our markets.  In fact, I noted that we would likely see the metals trade in tandem with the equity markets, especially since most assumed the exact opposite would occur.  And, 2016 has, thus far, proven me correct in my expectations. 

As you know reading my analysis of the SPX, with the strong decline seen in the SPX on Friday, it seems the SPX may have almost caught up with the wave count seen in the GDX.  This would mean that both may see a “corrective” rally in the coming week or two, which would complete a b-wave structure in a larger 2^nd wave count.  This could set up a c-wave for both into the end of the month, and complete a larger degree correction, which would set up the next major rally phase in all the markets we are following.  Again, this is not written in stone, but these markets have been following my larger expectations I provided back in 2015, and I have seen no reason to make me consider abandoning this perspective at this point in time.

Now, let’s move onto the charts.

In starting with the daily GLD chart, it is very hard for me to come up with a very bearish pattern.  The move down off the August high was clearly corrective, which suggests this is simply a high level correction in the GLD.  But, that does not mean that a little lower will not be seen.  While there is a certain amount of conjecture I am presenting, my “assumption” is that we see a rally back towards the highs as a b-wave rally, followed by a c-wave down to complete wave 2 of wave iii.  It would take a strong move through 132 to make me consider that the heart of the 3^rd wave has taken hold, and we would be targeting the 150 region next.

In moving onto the silver chart, and applying the same pattern, it would suggest we also re-test the August highs in a b-wave, followed by a c-wave back down towards the 18 region before this correction completes.

This now brings me to the GDX.  While I would love to view the GDX in the most bullish sense, it is hard to view the last rally as a clear and clean 5 wave structure off the lows. Of course, I can view the extended move up as an extended 5^th wave in wave (i), but that will only be my alternative count at this time.  For now, I think the market suggests that we should see at least the 24 region, but, more likely the 22 region.  Should we see a stronger extensions lower, then the 19.70 region will likely complete this wave ii and set up the next major rally in this complex.  My alternative, more immediate bullish perspective gains more bite on an impulsive move through the 31.50 level on the next rally.

As an aside, the main reason I am expecting another rally within what I am counting as a b-wave bounce is because it is much less likely that the last high represented all of the b-wave since it is not terribly proportional to the a-wave decline.  So, from a timing, structure and “look” perspective, I think we “should” see another rally potentially beginning this coming week.

In conclusion, I still believe we have estimated 70% probability that the larger bull market in the metals complex has returned.  However, based upon the action seen this past week, I am not yet convinced that the low to this correction has been seen.  But, as you know, I always maintain an open mind, and should the market prove this to be wrong, I have given you what I need to see to convince me to be immediately bullish and I will send out a strongly worded alert to our members at Elliottwavetrader.net should that occur.

See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-YI-201609111365.html .