We have been moving higher in gold and silver, as expected since we broke resistance, and I still think we will see even higher levels yet. However, I am now seeing a difference between the various metals charts I am viewing.
When I look at the daily silver chart -- the Mini Silver Futures Contract -- and even compare it to the June-September rally last year, I can see silver heading much higher, and potentially still as high as the 26-27 region. However, when I look at the smaller time frame of the 144-minute chart, and especially in the SPDR Gold Shares
(NYSEARCA:GLD), I am seeing a top that can potentially occur earlier than expected, which does get me a bit more cautious. But, again, the daily silver chart is looking extremely bullish to me at this time, and if I were just reading that chart, I would think we could still see maybe another two or even three weeks of rally in silver, with maybe a week or so of that time being a larger degree 4th wave in this c-wave, according to Elliott Wave Theory.
But, because of the GLD charts signaling some caution, I am going to suggest that those who are trading this rally with shorter-term options consider taking their profits on the lower targets I present in the analysis below. There is no reason to let those profits go to waste. So, yes, I am suggesting to many of you to consider playing this move up a bit safer at this time, and allow a 4th wave corrective pullback to develop before re-entering for a potential 5th wave.
When I look at the GLD chart, the pattern seems to indicate that we are in the 5th wave of the wave iii of the c-wave. This means that this c-wave may not extend as high as we had initially expected, and we may actually top in GLD 138.50 region, which is where a=c. In fact, the 3rd wave of wave iii did not even reach the 1.00 extension of the c-wave Fibonacci Pinball level, which tells me that gold is not quite as strong as many believe. And, as for support, any break down now below 130 (the top of wave i of the c-wave) opens the door to a much larger decline which can still target at least the 112 region.
As for silver, this current pattern seems to be targeting the 24.55-24.76 region. The question is whether this will represent the top of wave iii, or all of this corrective rally. When I look at the daily technicals, there are no signs of a market top at this time. The RSI and the Slow Stochastics are embedded, and the MACD is still pointing up, which are all signals of us still being in the 3rd wave of this c-wave.
In fact, if we compare the pattern in the RSI to that of the June-September rally last year, we almost doubled the amount of rally that has been seen thus far in that time frame. This would still keep us on target to hit the 26-27 region within the next few weeks. However, due the smaller time frame pattern, I am going to suggest exiting your shorter term long positions as we move into the 24.55-24.76 region, and allow the market to prove to us that it is wants to consolidate in a multiple-day (maybe even week long) wave iv before re-entering for a wave v rally. A breakdown below the 22.20 level would indicate to me that the trap door may be opening and having us target the 17.75 level next.
What is most interesting is that GLD does not present nearly as strong as silver. The negative divergences we are seeing in GLD relative to the a-wave (which are not seen in silver) are actually quite surprising, and explains why gold is not performing as well as silver on a relative basis. In fact, silver can continue to outperform GLD, which may be why I can see GLD topping well below a potential top in silver, from a relative perspective.
And, as you may recall, many of you were shocked when I announced at the end of June that I was no longer hedged in silver on my LEAPS. At this time, I will sell my shorter term calls and begin to layer in hedges as we move into the 24.55-24.76 region (assuming we do not see any clear extensions). But, at the same time, if we see an adequate wave iv, I will then re-enter shorter time frame longs for a wave v – which can still take us to the 26-27 region, and begin to add further hedges after the 3rd wave of that wave v begins to complete.
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.
Is This Wave IV?
Trying to Complete 5 Waves Down
Positions in GLD and SLV.