I know many of you are viewing the metals and thinking that the signs are exceptionally bullish, and a long-lasting bottom is in place. But, I am not anywhere near as confident. Especially when I look at silver. While gold has given us a larger move higher, silver is still meandering in what could still be considered a larger fourth wave triangle according to Elliott Wave technical analysis. And, as I have said, often one labels a triangle as completed a little too early. So, for now, until the Mini Silver Futures Contract breaks down below the 19.20 level, I am going to look for an e-wave to this 4th wave triangle.
Alternatively, silver may be in an ending diagonal for a c-wave of this wave 4 (the yellow count), and only completed the fourth wave of this ending diagonal, which also needs another a-b-c rally to complete. But, the difference between these two potential counts is that the ED can see a spike out of the upper trend line, while the triangle would most likely remain within the bounds of the trend line. Under both these counts, we should maintain below 21.35.
And, for those of you that think that silver may be in a much more bullish 1-2, i-ii, (1)-(2) setup, note that the rally that topped on 7/11 was only a 3 wave rally, which makes it near impossible to count this as the series of 1-2’s.
So, as my firm has been saying for weeks now, the initial resistance region in silver is the 20.60 region, and that has held silver in check thus far. While we may yet see silver take this level out over the next week or two, until it is able to move over the 21.35 level, I am not going to get excited about seeing much higher levels in silver just yet. And, since the move thus far has not been accompanied by any large buying volume, it is not looking good for such a breakout to occur, as all indications point to this being a corrective rally.
As for the SPDR Gold Shares
(NYSEARCA:GLD), we have a little different story. While one can attempt to place a bullish count on GLD off the lows in June, the buying volume really does not support such a perspective at this time. When the metals are in a bullish phase, buying volume usually makes this abundantly clear. So, the relatively anemic buying volume, along with the very corrective-looking pattern in silver, is making me view GLD as running out of room overhead before new lows are seen. So, while GLD has nominally taken out the 129 resistance I mentioned last week, and turned down at the next Fibonacci resistance level around 130, I am still not a gold bull yet. But that does not mean that I don’t see the possibility of GLD moving up as high as 132, as long as it maintains over 122. And, if it can break through 132 with strong volume, then we may see a really nice short-covering rally all the way up to the 142-145 region before the next -- and hopefully final -- decline is seen.
But, as I said many times before, no matter which fractal level you view, it seems that the metals need at least one more drop, and potentially two more, before a final bottom is in place and a major rally is seen.
See charts illustrating wave counts on silver and gold here
Editor's note: Avi Gilburt is author of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition. His Elliott Wave analysis appears frequently on several financial news sites.
Long LEAPS on SLV and intermediate term puts on GLD and SLV.