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Elliot Wave Analysis: Silver and Gold Almost There

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This past week we broke our initial resistance level at 121 in GLD, but we still need the confirmation through the 123 level.

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For the last two weeks, I have been citing the same paragraph to guide you in the metals:

"While I would absolutely love to tell you definitively to go long or short right here and now, I simply cannot, as the patterns are not clearly indicative of either potential at this time. Rather, I am going to have to wait for the market to either provide the breakout signal over the 123 level or a break down below 117 in the SPDR Gold Shares (NYSEARCA:GLD), along with a break out over 21.50 or a breakdown below 19.32 in the Mini Silver Futures Contract. But, it means that over the cited support levels we should be looking up, and a break down below those levels, we begin to look down. If you want to remain long, you now have clearly defined stops, especially when you consider the upside potential this run may provide, which is the 136-140 region in GLD and the 26/27 region in silver. Personally, I have purchased an intermediate term options strangle in this region because I am expecting a big move in the metals over the next two months from the point we closed on Friday [January 10], and the direction is not wholly clear just yet."

So, this past week, we broke our initial resistance level at 121, but we still need the confirmation through the 123 level. In the micro count of our Elliott Wave analysis, the high we hit on Friday was the wave 3 of (iii) of 3 of iii. This means that we should ideally not break down below the 121 level (.764 extension) if this is the correct count, and immediately begin a rally which exceeds 125, with the ideal target of 125.90, with the potential to extend to 127. The only issue is that silver does not have the same pattern set up at this time. In fact, I have noted that silver has a more bearish pattern off the lows, which has caused me to maintain my longer term OTM puts on GLD, at least until we see a solid break out over the 123 region.

Therefore, if the market does top in this region and turns down hard, I will be viewing this as a wave iv high within wave 3, which still would take us down to the 106/108 region, with the ideal target being the 108 region, as it is the 1.618 extension down and the traditional target for a wave 3 in this pattern, with the potential to even extend down to the 1.764 extension in the 105.85 region, and the bottom of the trend channel.

For now, primary support resides at 121, with secondary support in the 117/118 region. A break down below 117 has me targeting a minimum target of 108.

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.

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Position in SLV LEAPS and GLD
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