To classify the movement of the metals this past week as “frustrating” is probably an understatement. Per Elliott Wave Theory, larger patterns are pointing down in a major way right now, but the metals refused to give us an immediate pattern to confirm this will begin sooner rather than later.
And, as I have been saying for quite some time, I think the SPDR Gold Shares
(NYSEARCA:GLD) may provide us with the bigger move down, as silver has had a much more sizeable correction to date, and it seems that GLD could very well catch up. My preferred target for GLD is in the 98 region, but we will have to break down below the 120 and 112 support levels to get there.
As for silver, 17.76 is my next target in the Mini Silver Futures Contract, with the 16.35 level below that. If silver does break down below that region, then I would have to classify this drop in silver as a wave 2 of a larger degree rather than a wave 4, which then will cause my targets for silver to rise over 100. But, it also means that silver can see the low teens before it begins that type of rally. To me, this would make silver one of the most attractive opportunities I see for the next five years, as I would be looking for an eight- to tenfold increase in that metal after the remaining bulls are flushed out of that market.
But, we are still left with the question as to when this next larger decline will occur. On my GLD chart, a really beautiful downtrend channel has taken shape over the last year. If that channel provides us with any clues, then the decline should begin over the next week sometime, with the lower targets being hit at the end of this month. In fact, the lower trend line crosses the 98 level exactly at the end of October.
However, we have yet to see any clear signals that the metals want to hit their lower targets immediately. This upcoming week will probably be the last opportunity for us to set up to hit these targets this month. While I know that the metals can drop quite fast when they do decline, remember, not only do we need a third wave down, but we will still likely need at least a week or so for their respective fourth waves to consolidate before concluding a fifth wave into the target regions. So, again, if their goal is to maintain this trend channel, I would expect that we will see big downside action beginning sometime this upcoming week.
Alternatively, we have the potential for a larger ABC upside correction before the downside begins. Arkady has been cautioning about this endlessly and warning us not to be complacent and only expect the downside. So, as long as GLD maintains over the 120 region, it does have the potential to approach the 140s before the larger downside begins. In the event this pattern plays out, we may not see our bottom being hit until early 2014.
So, I will reserve discussing specific levels to watch this upcoming week in this update, as it will likely be so fluid that we will have to follow these markets as they progress. The purpose of this update is to make sure you are focusing on the forest rather than the trees. Ultimately, keep in mind that my perspective is that new lows will likely be seen before any new highs in the metals are likely to be seen. As always, I will maintain an open mind and consider that the bottom for the metals may have already been seen, but that is of a very low likelihood to me at this point in time.
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.
No positions in stocks mentioned.