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Charts: Is There Any Rally Left in Silver and Gold?


We may not see much higher levels before the next downside phase begins in earnest.

With the weakness clearly seen in the expected metals rally last week, I have strong concerns about our ability to see much higher levels before the next downside phase begins in earnest.

Last week, noting our Elliott Wave analysis, I wrote:

. . . as long as we do not break down strongly below the 123 region in the SPDR Gold Shares (NYSEARCA:GLD), I will expect the market to begin a rally next week in a wave ii, which should target the region between 127.50 (.382 retracement) and 130 (.618 retracement) in 3 waves.  Since the metals will not often see deep 2nd waves, I would suggest stops on shorts just above the .764 retracement at the 131.50 region.  In silver, the same region would be the 20.45-20.95 region in the Mini Silver Futures Contract, with stops just over 21.30.

The low this past week in GLD was 123.10, and the current rally began.  However, as we have all see, even with the break out of the downtrend channel, the rally has been quite weak.  In fact, we have yet to even hit the lower end of my target region. Silver does not even have any impulsive patterns up for even a c-wave at this time, as all rises were in waves of 3.  So, while I can count the GLD as being within a 4th wave of a c-wave, needing a 5th wave move higher to complete this c-wave, silver may be in an ending diagonal for its c-wave.  But, the question is if either metal will attain its minimum target for this corrective rally.

Of course, I can always classify this rally off the lows as the a-wave of our expected wave ii in our primary count, but I think it is a dangerous game to play the long side in the metals as long as we remain below 131.50 in the GLD.  I may consider another trade higher in the metals if, after we complete the 5th wave in this c-wave, we see a multiple-day corrective pullback, which would then make me see the imminent high we are about to make as an a-wave in wave ii, with the c-wave deeper into our target zone yet to come.

But, again, I think it is a dangerous perspective to take, especially in light of a potentially strong wave iii down that is staring us in the face as we look up.  So, until I see evidence of a larger degree b-wave for wave ii, I am going to play it safe, and classify this as the c-wave of wave ii, which would expect the wave iii decline to begin over the next week some time.   And, as you can see on the 144 minute chart of GLD, I have added my expectations for how wave iii down can take shape, in the event that 127.50 is the maximum high we see for wave ii.  But, I will be open to a higher retrace if we see a multiple day consolidation take shape after we complete this c-wave.

Last week, I also provided you with my alternative count on the metals:

The one issue I have with the overall pattern I see in the metals stems from the silver chart.  This "rally" that we have seen in 2014 in silver fell far too short of our ideal targets to make me very comfortable in shorting silver.  And, as I have said before, if silver has recently hit its top in a b-wave within its final 5th wave, then the target for silver could very well take it down to the 11-15 region.  It is because of this chart that I have forced myself to consider an alternative pattern in silver, wherein we are within a WXY pattern since we bottomed in June of 2012, and we are currently in the b-wave pullback within the Y wave, have to still target the 24-25 region to complete the c-wave of this larger degree pattern.  Again, this is not my primary count, but it is something I will adopt if silver should move over the 21.82 level on the impending rally we are expecting.  And, the fact that GLD also fell short of its ideal target, it will force me to adopt the same alternative count for GLD should we exceed the 131.50 region on the impending rally, which will then have me targeting the 140-143 region.

As it stands right now, as low a likelihood as the alternative count was before we began this rally, it has become even a lower likelihood.  The reason I say this is because a bigger c-wave higher to those higher cited levels in the alternative count would have to be a 5 wave structure.  Yet, the move off the lows was a fairly clear 3 wave structure, making the possibility this will morph into a c-wave to new highs much less likely at this time.

There is one more point I would like to make about silver.  Due to the manner in which the decline has taken shape from the February highs, the shape of the decline may be suggestive of an ending diagonal, which, if played out, would be able to maintain support in the 16 region.  So, while silver does still have the possibility that it can maintain important support, we will need to see how the next decline phase takes shape to know more certainly if this possibility is a stronger possibility.  If the next decline begins as a 3 wave event, then I will be moving into this possibility in a much bigger way.

See chart illustrating wave counts on gold and silver here.

Editor's note: Avi Gilburt is author of, 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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