Silver and gold have both been held down by resistance and have been held up by support. In other words, they are now in no-man’s-land.
According to Elliott Wave theory, if we are to view that the top of a smaller degree fourth wave has been struck, then no new highs should be seen in either of the metals and new lows should be right around the corner. However, if this pullback, which, so far, has held the .618 retrace in silver and the .382 retrace in the SPDR Gold Shares
(NYSEARCA:GLD), is only a b-wave, a move over the prior highs can give us a much bigger rally in both metals. Such a rally would likely be the c-wave of the larger degree fourth wave. And, this would bring back our higher targets for the metals which I have discussed, ad nauseum, over the last several months. But, silver will now need to take out the 21.50 (a=c) level in a strong fashion if it is going to see 23 or higher.
The main issue with being able to distinguish the next larger move as up or down is that the downside can also begin by a corrective-looking decline. Since the first downside move would be an a-wave, which does look corrective, until the metals take out their prior highs, we can count this decline as an a-wave of the next 3 wave move down. But, if we take out the prior highs, then it becomes more likely that a c-wave up is taking hold and we are potentially in the larger fourth wave, which will set up the final decline in a fifth wave for the metals.
I know this type of analysis is not making it easy to identify how one ought to place money into a short term trade right now, but the more prudent of us will wait until the next pattern is completed to know how to trade the larger degree waves. Since the likelihood that the next downside phase is equal, in my humble opinion, to the next upside movement, I cannot provide confidence as to which side of this trade is more likely at this time. It is not often that I don't have a good read as to where the next move will be taking us, but this can truly go either way based upon the manner in which the market left us on Friday.
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.
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