As we often find ourselves, we are in a blue box in the metals, and specifically the SPDR Gold Shares
(NYSEARCA:GLD). As readers have heard me say dozens of time now, the potential exists that GLD will see a larger decline this time than silver, so I am tracking GLD much more closely, and keying off its levels and chart.
For those who like head-and-shoulders patterns, it seems as though this pattern has potentially triggered with Friday’s drop in GLD. In fact, after the gap down, the market came back and consolidated under the neckline of this H&S, but was unable to break back through it.
For now, I am ideally still expecting lower levels to be hit. My main support region at this time is the 119/120 region in GLD. While there is a pattern in place that can allow for GLD to bottom in this region and begin a strong rally back to 129, and potentially as high as 145, I must also warn that the potential exists for a gap down Monday, which may take us below that support region. That is, in fact, my ideal scenario, and would be the most bearish signal we could see in the metals come Monday morning. This would set us on a course for the 112 region, where we would likely consolidate in a 4th wave, on our way down to the 98 region in a 5th wave by the end of the month. Again, this is my ideal scenario that I have outlined over the last few weeks, and we need one more major crack of support to begin to really see the major fruits of this short trade since we exited our longs and went short at 138 GLD.
Some of you have been asking why I see GLD dropping so far when it is beyond the standard extensions you may be calculating when using Fibonacci Pinball. The reason is that anything that is as highly emotional a trading vehicle as the metals, or the VXX
(NYSEARCA:VXX), almost always provides for extensions that are larger than the standard extensions we see in the equities. So that's why I normally look for the 2.618 or even 3.618 extensions for 3rd waves rather than the standard 1.618 extensions.
Also, a number of you have pointed out the uptrend line that is sitting just below where the Mini Silver Futures Contract seemed to have bottomed on Friday. Well, if we see the same type of gap down I expect in GLD, this support trend line will be history as well, and we could be well on our way to our next target region in the 17.76 region.
What I will be specifically focusing upon this upcoming week is not just the price action, but also the MACD on the 144 minute GLD chart. As I noted during the week, the MACD is now at support. The question is if it will break support or begin to curl up. As of the end of the day on Friday, it looked like it may attempt to curl up. And, if it does, then I will likely be exiting some of my shorts, and going long for a trade. However, if it breaks down early next week, it is further confirmation that price action wants to continue much lower. So, early action this coming week should provide some answers about the next month or so of trading for the metals.
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.
Position in SLV LEAPS and GLD.