Those who follow my work
know that I do not believe in market correlations. Rather, I believe that each chart should be traded on its own, and based upon its own particular pattern, irrespective of any other market. However, when I see signs that larger risk asset markets could be aligning in larger degree patterns, it does make me take notice.
So, rather than speak in riddles, let me explain what I am talking about. As you know, my perspective of the equity markets sees us still potentially needing to see lower levels for the green wave (4). Furthermore, it seems likely that the metals will also see one more decline to complete this wave v of 3. At that point, I would expect a larger rally in a bigger wave 4 up to the 26/27 region. This “could” potentially coincide with the 5th wave rally in the equity market I expect to see in June. From the top of the equity 5th wave rally and the metals 4th wave rally, all assets may decline together through the summer, wherein the equity markets will see yellow wave 4 down, and the metals could see wave 5 down to complete their two year correction. This would set up all risk assets for a final rally into early 2014 for what could be a multi-year top in all asset markets.
So, yes, while this represents a certain amount of conjecture and is nowhere near a confirmed perspective at this time, I just wanted to present to you some of my thoughts from this long holiday weekend of what may transpire over the next year in risk assets, including the metals.
For now, I still think that both metals are potentially signaling a set up for another decline to complete a 5th wave down. So as long as the SPDR Gold Shares
(NYSEARCA:GLD) can maintain below 139, we can still see a decline to take it to the 124.75-127 region. As for silver, as long as the Mini Silver Futures Contract maintains below the 22.75-23.05 resistance region, it can potentially see a c-wave down in this wave v of 3 ending diagonal. Any breakout over the cited levels would make me reassess the pattern, and potentially tell me that the larger degree wave 4 could be in play.
And again, I want you considering the forest rather than the trees or leaves on the metals at this time. I have said over the years that the metals often give nice clear positive divergence set-ups on the daily chart when they are making a final low. For now, we have seen the last decline to new lows in silver provide us with positive divergence, and we now have a set-up for an even nicer positive divergence for another decline, if we do see it over the next week or two. Clearly, we have enough positive divergence to view the bottom for 3 in place, but I think the wave structure argues for one more decline.
Furthermore, for the larger fourth wave to be confirmed as being in progress, in my mind, I would need to see the RSI on the daily silver chart break through the declining trend line, which it has failed to do since last October. Once it breaks through that trendline, and we complete a 4th wave rally, I would expect that the 5th wave down could present us with a test of the top of that trend line, as well as provide us with the positive divergence that would evidence a final bottoming pattern in the metals, before the expected strong rally takes hold later this year.
See charts illustrating wave counts on silver and gold, here
Editor's note: Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including e-mini S&P 500, metals, oil, USD, and VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
Long silver with SLV LEAPS, hedged with intermediate puts.