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Silver and Gold Setting Up for Short-Term Rally


It seems worth the risk to attempt short trades in the metals. Here's why.

With the break down below 126 in the SPDR Gold Shares (NYSEARCA:GLD), it has now signaled that it is much less likely that new highs will be seen, and the next rally will likely be a corrective rally.

As the market continued to slide lower in the metals last week, it has done so with the positive divergences we normally see when we are nearing a bottom of sorts. In fact, the MACD on the 144-minute chart that my firm uses for GLD substantiates our current count as having just about completed a 5 wave structure from the recent market highs.  And, after a 5 wave structure completes, we are now ready to look for a wave ii corrective rally, which I will expect to begin early next week.

Also, as I noted in the Trading Room at, as long as we maintain over the 123 region, I will expect that we have only completed wave i down in the GLD, rather than a series of waves 1-2.  However, should we break down below the 123 region with strong selling volume, then I will view us as being in the heart of wave iii down, with the blue target box below as our next larger target zone. But, clearly, this is not my primary expectation just yet.

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 the Mini Silver Futures Contract 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 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.

Getting back to my primary expectations, as long as we do not break down strongly below the 123 region, 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 20.45-21 region, with stops just over 21.30.

Since the downside expectations in both metals are quite significant, I think it is well worth the risk to attempt these short trades even though neither metal attained their ideal targets for this rise off the 2013 lows, which has left some questions in the back of my mind as I have mentioned above.  Yet, sometimes, it takes two tries to get such a large trade set up right, so in the event that the metals do ultimately take us to the higher initial targets, we will likely have a second shot at the apple from a higher level.  But, for now, my primary expectation is that we will see a wave 2 corrective rally over the next week or two, and as long as we maintain below the cited resistance regions, I will be focused on the significant downside that lay before us in the months of April and May.

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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