Last weekend I noted how the precious metals bulls were running wild, and I was expecting a pullback. This past week seems to have put the fear of God back into the bulls, as many of them are now running scared. So, while we hear many of them still screaming about backwardation and negative GOFO, the question we ask ourselves is whether we have a confirmed bottom in place to expect a rally to begin toward the 140s in the SPDR Gold Shares
Elliott Wave Analysis
Early in the week, I continually noted that GLD – which I have been using as my metals proxy – had to bust through the 131.50 region initially before it signaled a potential breakout. As we saw, that region held quite well, and the market began to decline toward our next support region in the 126/128 area. In fact, we have a longer-term Fibonacci level, along with the .500 retracement of the last rally coinciding right in the region of the 126 level in GLD. Furthermore, as of the close on Friday (Nov 1), the MACD is attempting to turn up once again just over the prior support region where we have seen several bottoms of late. So, as long as the market can maintain support over the 123 region, and the MACD can turn up, I still think we can see a rally take us toward the 145 region. In fact, a drop down toward the 123 region gives us a target for a 5 wave structure that has a 2.00 extension right at 145.
However, if the market is unable to hold that 123 region, and breaks down below the 119 level, I am going to view this as wave 3 down which will likely not stop until we hit at least the 112 region.
So, the only thing that has changed in my plans at this time is that, if you are still short the metals from the last highs in August, then you probably should cover your shorts if we see a strong breakout over the 131.50 region in GLD.
As for silver, the relevant resistance region in the Mini Silver Futures Contract is now the 23.11 level, and a strong move through that region which follows through the August high will be pointing us into the 27 region.
There is one further thought that I did have over the last week. It is entirely possible that the market simply consolidates in a b-wave triangle between 120-131 in the GLD through the month of November. In fact, it would provide us with a consolidation that would take us from one side of the current down trend channel to the other through the month. So, if the next move higher is on very weak volume, and we are unable to move through the 131.50 level, and fall back once more later this month, this would become a very strong possibility to watch through the month of November.
But, again, I am still not convinced that the absolute lows have been seen in the metals just yet, but will be open to that possibility in the event the market does provide us with evidence of such on the next rally.
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.