First published on Sat Jun 10 for members of ElliottWaveTrader.net: As we came into 2017, I was looking for the metals market to bottom and begin a strong rally for 2017 which would take us back to the highs of 2016 and beyond. Thus far, the market has bottomed, but we have only been consolidating for most of the year.
For most people, this consolidation phase has been quite frustrating. So much so that many have actually been losing interest in this complex. But, there is still a certain amount of “hope” evident in the market, especially as gold marginally broke out over its April high. Clearly, it was not a sustained break out, and it has left gold in a precarious short-term position.
I have warned many of those who read my analysis that trend line analysis in this complex most often will have you turning towards a certain “sentiment” right before the market reverses strongly. This past week, many got bullishly excited with gold’s “break out” of a trend line, only to turn down almost immediately. And, to be honest, this has happened at just about each and every metals turn we have seen over the last several years. Remember the failed heads and shoulders break down at the end of 2016? I even warned you in advance back in September and October that the heads and shoulders would set up and then fake everyone out on the supposed “break down” of the neckline, only to get most of the market bearish right as the turn was about to occur to the upside.
Each trend line break, whether it be to the upside or downside, has only served to whipsaw those that make the use of trendlines their primary analysis. And, I have repeatedly warned how using trend lines as a primary means of analysis is the most crude form of technical analysis within which one can engage. Moreover, in the metals complex, it is almost a certainty that you will be whipsawed following trend lines, as we have seen time and again for the last several years. But, I digress.
In the GLD, if we are going to consider the high struck this past week as another 5 wave structure off the May low, then the market struck the .382 retracement of that rally in the 120 region. That is ordinarily the target for the a-wave of a 2nd wave pullback. That means that any rally from this point, which is corrective in nature, ordinarily will remain below the 122.15-122.60 region, and then drop us down to the 118.50-119.40 region to complete another corrective pullback.
But, as l noted this past week, due to the manner in which the GLD rallied since its May lows, it is hard to identify a clear 5 wave impulsive structure, which opens the potential that this was merely a b-wave rally off the May low. This would mean that the GLD may be targeting the 116 region once more. But, ultimately, this would also mean that the pullback within which we now find ourselves – whether it finds support in the upper region noted or drops all the way down to the 116 region – will likely be the last pullback we see in the chart before the parabolic phase of this move off the December 2015 lows take hold.
As you can see from the daily chart, as long as we hold the 116 region as support, the market has a set up in place to rally quite strongly to the 138 region, with the 143/45 region the more ideal target, on its way to the 157-168 region later this year. The trigger to this next rally will be a solid break out over this past week’s high, with strong follow through seen over 124.55. And, as many of you ask me for confirmation, I will note that the next phase of this rally “should” be unmistakable as the heart of 3rd wave action.
As far as the GDX is concerned, we finally were able to attack the 24 region that I wanted to see struck before a bigger pullback took hold. The market has complied quite nicely. But, the action seen since the middle of May is a bit amorphous within its Elliott Wave structure. Unfortunately, it does leave us with two possibilities, as noted in the GLD.
Micro-resistance on GDX resides between 23.45-23.70. As long as any rally towards that region is corrective in nature, I am going to expect further downside consolidation in the GDX over the coming week or two. However, should we see a break out over this past weeks’ high, which rallies strongly through the 24.35 region, then the door opens towards the 28 region, on our way back to the August 2016 highs.
As for silver, my preferred path is noted in green on the 144-minute chart. It, too, suggests that we have begun a pullback in the complex which can still take us another week or two before it completes. But, should the market break out over the highs made this past week, and rally strongly through the 18.15 region, it is likely suggestive of silver having begun its parabolic move higher, which will likely be pointing us towards the 23 region next, but more preferably towards the 25-26 region.
They say that patience is a virtue. But, based upon that saying, I am not terribly virtuous when it comes to the metals complex, and I know many of you likely lack virtue as well. However, I believe that a bit more patience within this complex over the coming week or two can very likely pay off, assuming support holds during that period of time (the May lows). These are the set ups that one wants to see from a risk/reward perspective, so no matter how scary a c-wave decline may feel in the coming week or two, keep in mind the risk/reward perspective in this region.