After a wild week, we still have no clear answers. In fact, it has caused me to expand the potential “watch” area. And, no, this is not a good development for those who want a definitive answer as to where we are in precious metals.
I use Elliott Wave analysis, and last week I said to watch the 121-123 region in the SPDR Gold Shares
(NYSEARCA:GLD) for a possible breakout signal for a c-wave much higher. Well, the market partially complied and topped at 122.32. Without breaking through the 123 level in a 5 wave structure, all we are left with is a potential wave iv in the current decline phase. However, the question still on the table is if this is an a-wave high in wave iv, or did it complete wave iv. And, the answer will have very different implications.
In my opinion, the answer will likely depend on whether the current decline of the last few days results in a 5 wave downside structure (of which we really only have a solid 3), or if we take out the 121 region in strong fashion before we complete a fifth wave down. The latter scenario would make the bottom we made at the end of last week a b-wave bottom within wave iv. The upside c-wave, which would follow on a strong move through 121, again would likely take us back to the 123 region, and even as high as the 125 region. Just over the 125 region is where a c-wave would be equal to 1.382 times the size of the a-wave, and is a common occurrence in the metals. Furthermore, it is also where the top of the current downtrend channel resides. I would likely attempt another short trade in that region.
But note that if we do get a marginal lower low, it can represent the bottom of wave v of the c-wave of the purple b-wave, and a strong move through last week’s high from that low will mark the start of our purple c-wave rally to the 131.50 region, and potentially back to the 138-140 region.
So, please understand that we are potentially in whipsaw territory.
As for silver, the same patterns discussed above point towards 20.85 in the Mini Silver Futures Contract as the a=c region, whereas 21.45 is the 1.382 extension.
And, as you know, I still do not believe we have seen the
bottom in the metals just yet. I am still looking for one final big flush down in the market to take out the last vestiges of the bulls before we can call this over two-year correction complete and spark a multi-year 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.