My caution on the long side in the metals paid off last week. However, the action in the SPDR Gold Shares
(NYSEARCA:GLD) is not yet suggestive that a top is in place. In fact, it is actually due to that action that I noted last week that silver could outperform gold if there is another attempted run to higher levels. Yes, I know this sounds counterintuitive, so let me explain.
So far, in my firm's Elliott Wave analysis, both metals have only seen three waves up off their lows. In silver, it is even more pronounced than it is for GLD. But, GLD is still holding its weak and just barely impulsive pattern off the lows while silver has not. Furthermore, GLD has been maintaining its uptrend channel the entire time, which potentially is still pointing to the low 130s before it hits a top. This is assuming that it maintains support over 126.
However, the structure in silver is more of an a-b-c pattern, which would take the c-wave to the 24 region in the Mini Silver Futures Contract in the event it maintains support -- ideally over 20.40, which is where a=c in a (b) wave decline. The lowest point at which I am able to accept this perspective is the 19.90 level, which is where c=1.382*a. If silver begins an impulsive rally from one of these regions, and moves beyond the 21.65 level, then I will be looking towards the 24 region.
I do want to point out that this type of analysis speculates that silver will outperform gold on the upside, assuming both maintain support. It is based upon the assumption that gold has been very weak on this rise whereas silver has been much more volatile; this can potentially lead silver to outperform on the upside as gold continues in its current, relatively weak pattern (at least, for gold this is considered to be relatively weak).
Alternatively, it is quite possible that silver's c-wave to complete wave 4 can still be a 5 wave ending diagonal, which will complete in the 22.50-23 region.
It is for this reason that I am suggesting that, if you attempt a speculative long, and silver is able to exceed 21.65, you consider taking your profits in the 22.50-23 region as I cannot have any great assurance that this won't conclude this larger-degree corrective rise and trigger a downside reversal. I will be noting my bullish count in silver as the ending diagonal as I do not see a strong reason to hold out for the 24 region based upon the current setup and downside risk. However, it still means that silver will likely outperform gold on this next rise, assuming both maintain cited support.
A break of cited support will get me into the "topping" camp, and have me looking for new lows in both metals.
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. His Elliott Wave analysis appears frequently on several financial news sites.
Positions in long SLV LEAPS and GLD.