Testing Your “Metal”

First published Sat Dec 3 for members of ElliottWaveTrader.net:  I am sure some of you likely recognized that I may have misused “metal” in the title to this update.  You are probably thinking that the appropriate word that should be used is “mettle.”

If you learned the history of the word “mettle,” you will see that, prior to the 17^th century, both spellings actually referred to the precious substance we mine out of the ground, as well as to its attributed meaning today.  The words were interchangeable until that time.  However, as we moved into the 18^th century, the meanings diverged, with “mettle” then only referring to a person’s character.

But, I digress.  I think any metals investor understands my point.  The metals have certainly tried your patience, as well as your character, especially as metals bulls have become more of an endangered breed than even the giant panda.

This past week, we have seen even more people throwing in the towel in the complex.  The first major group to throw in the towel occurred when the GDX broke below its “clear” heads and shoulders neck-line at 22.  But, that I expected to happen, and warned about it weeks before it happened.  This past week, we saw many more throw in the towel when gold broke below its .618 retracement.  And, yes, I still think this could represent a perfect bear trap, but even my own patience is running thin.

Personally, I did not want to see GLD break below the 111/112 support region, which it momentarily did this past week.  But, I think the pattern down in this region is more important than the .618 retracement break, which I noted in my metals updates this past week.  The main reason is that GLD seems to be completing a micro 5 wave structure down just below this support level, which may still need one more lower low before completing.  But, I think we are now within days, if not hours, of a reversal in the market.  Once this micro 5 wave downside structure has completed, or confirms that it has completed, the next rally off this region will be very telling for the overall complex.

The analysis you are about to read is clearly going to be inconclusive, as the market has still not clearly told us that a bottom has been struck.  There are different patterns presented in the GLD, GDX and silver, and they are not universally suggestive of a strong bottom being in place just yet.  So, please approach the following analysis understanding that it is presenting what must be seen in order to confirm a bottom being in place, while leaving the door open to a lower low still being needed before that bottom is in place.

One can make the argument that the micro 5 wave structure for this last move down completed at the lows seen this past week in the GLD, which is presented in purple on the 8 minute attached GLD chart.  Moreover, one can even view the rally off the lows as a potential impulsive structure in the making.  But, since silver and the GDX really do not have clearly completed bottoming structures in place, or even have clearly developed impulsive structures off their recent lows, I would say we still have the potential for one more drop before the downside structure can be considered completed.

However, due to the potential impulse being presented in the GLD off its low, I have begun noting on Friday what would begin to turn me more immediately bullish.  As you can see from the attached 8 minute chart on GLD, we have what can be viewed as a 1-2, i-ii structure off the lows.  But, the market has still not moved through the resistance region noted on our charts, which can still turn us down for a micro 5^th wave lower. 

Monday I think will be the key.  If the GLD sees a large gap up and rallies early in the week up towards the 114+ region, that would likely form an initial 5 wave structure off the lows, and be an early indication that the larger degree wave ii pullback may be complete.  Should we see that, I will issue an update to our members at Elliottwavetrader.net as to what we need to look for next to confirm the next major bull market phase.

As for silver and GDX, as mentioned earlier, they do not have the same clear potential seen in the GLD, which prevents me from being convinced a bottom has yet been struck.  As you can see from my silver chart, I would need to see an impulsive rally through the 17.45 resistance region, which has been noted on our chart for the last two weeks, before I am more convinced that the wave ii has completed. 

As far as the GDX is concerned, I think we all know that the market has to move impulsively back over the broken neckline at 22 to begin the short covering we normally see on a failed heads and shoulders pattern, with follow through over 24.50 telling us that we have likely begun wave 1 of wave iii in the next larger bullish move.  That larger degree bullish move is still projected to target the 60-70 region if GDX can hold this general support region.  And, yes, I still think we can reach that region within a year to 18 months after we break out over the August highs.

But, as I noted from my GLD analysis above, I can allow one more 5^th wave lower in this complex from a pattern perspective.  IF we do get that 5^th wave lower, we “should” then see a strong reversal, that is, if the low is already not in place.  If it is in place, we should start seeing signs of that from Monday’s action.  But, if the low is not already in place, or if one more lower low does not kick off the revival of the bull market, then I will begin to move into the “strongly concerned” camp.

As of now, I still maintain the view that the final lows in this complex have been struck back in December and January, and I estimate my confidence to still be within a 70% probability.  And, if you have noticed, we are within the target region we set months ago as to where this complex can potentially bottom in its 2^nd wave.  But, yes, even my patience is about to run out.  And, should we not see evidence of the completion of this correction very soon, that percentage may begin to erode.

See charts illustrating the wave counts on the GLD, GDX and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-Silver-201612041429.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.