Last weekend, I noted that â€œI am now getting cautious on the upside in the metals.â€Â And, yes, I did sell my shorter-term long positions as I suggested in my last article, and maintained my LEAPS.Â And even with the strong drop we saw in silver, the metals have yet to give us clear indications that we have begun the run down to new lows.
As for the current patterns in the metals, there is simply nothing typical about them.Â Under all circumstances, I would have expected, using Elliott Wave analysis, a very strong rally for a c-wave rally, which most would clearly mistake for a strong bull run beginning after what they would feel is a confirmed bottom in the metals. But, this is hardly what we have seen. The metals have only provided a very weak rally from their lows.
As an example, when silver enters into a bull phase, its upside extensions always
exceed the standard extensions we use in Fibonacci Pinball.Â But, at this time, the evidence is pointing toward the fact that it has maintained those standard extensions, and maybe even truncated.
If you look at my latest 144-minute chart
on the Mini Silver Futures Contract, you will see that it would seem that wave (5) of iii (or c) truncated, and all of this wave came up just shy of the 1.618 extension.Â This is very unusual for what should have been a very bullish silver move higher.Â At this time, the metal has dropped down to its 1.00 extension, where a wave 4 would ordinarily target in a standard movement.Â However, even that is unusual for silver, since most retracements in a bullish run are very
shallow for this metal, which often does not provide pullbacks for investors to enter upon. So, when I see a â€œstandardâ€ movement in silver, it brings more questions than comfort to the forefront.
The other issue is that silver is set up rather bearishly on the 5-minute chart I have been watching all week. In fact, unless it can break out over 21.60, we are looking at a set up for a larger 4th wave followed by a 5th wave down off the high, or we are already in that 5th wave down, which would see downside follow-through on Monday.
But, take note: Neither metal has given us a breakdown signal yet.Â And, that is even truer for the SPDR Gold Shares
(NYSEARCA:GLD) at this time. As long as it can maintain the 125 level as support, I have no indications that it has broken down or is setting up yet for lower lows. So, while I do remain cautious about the upside at this time, I do not have clear indications that the trend has turned back down.
And, if I have not made my point clear enough until now, I will reiterate that I am still expecting lower lows in both metals before the next bull run begins -- at least until the market proves otherwise.
See chart illustrating wave counts on gold and silver 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. Â His Elliott Wave analysis appears frequently on several financial news sites.
Position in SLV LEAPS and GLD