Over the last week, the precious metals market has continued down. As measured by Elliott Wave analysis, this move is best counted as a wave (3) of iii of 3. In fact, the slow stochastics on the daily silver futures chart – the Mini Silver Futures Contract -- is supporting this perspective, as it is currently embedded, which is what we see during third waves. However, support has still not broken in the SPDR Gold Shares
(NYSEARCA:GLD), so we have not yet seen the heart of the third wave down, which is usually marked by a waterfall decline.
Therefore, nothing yet has changed from last week’s analysis, as it is all still very applicable:
In the most bearish setup I can see, we are about to embark upon a wave (3) of iii of 3 – the heart of a third wave – down. In this setup, and using GLD as our continued proxy, as long as it remains below 128.30, and preferably below 126.30, we should be set up to break below 119 support quite hard. As you may remember, that is our signal that the 112 region will be our next likely target, on our way down to the 98 region.
However, if we are unable to break 119, or if we are able to move over the 128.30 region, it means that something else within this larger corrective wave action is playing out. Although the rally set up towards the 140’s is much less likely at this point in time, it has not been invalidated in GLD, whereas silver has taken the immediate potential pattern for this move off the table. So, again, I am not seeing the potential set up right now for the 140’s as the most likely outcome, especially as long as we remain below 128.30.
In summary, we are still left watching the 126.30, 128.30, and 131.50 resistance regions, along with the 119 support region to trigger our next big move in the metals. And, until 131.50 or 119 is broken, we may still get that b-wave triangle play out through the month of December.
One additional note: For those who took the short trade from the GLD 138 region as I did, clearly, there is no reason yet to cover those shorts -- unless we see a strong breakout signal over the 131.50 region. However, you can chose to take half your short position off if you see a strong move through the 126.30 region in an impulsive fashion.
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.
Positions in GLD, SLV LEAPS.