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Silver and Gold Almost at a Local Bottom

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We seem to be missing one more smaller fifth wave down before we see a stronger rally take hold.

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With both metals dropping as expected this past week, they have dropped a bit below my ideal target support levels for the bottom of this drop. But that often happens with the metals as extensions beyond standards are quite often seen. Yet we seem to be missing one more smaller fifth wave down before we see a stronger rally take hold. This means that my primary count has this rise we have seen at the end of the week as a minor fourth wave with one more smaller drop yet to come before we see a strong snap back. Again, as I have said, we don't always get the fourth wave we like to see to complete a perfect pattern, but this one really appears to needs one.

Please note that we are very close to a bottom, which can set up a larger degree fourth wave to take us much higher in both metals. My target region for the Mini Silver Futures Contract is 25-27, and my target region for the SPDR Gold Shares (NYSEARCA:GLD) is 138-145. However, silver is going to have to take out 21.80 to signal that the market is heading to the higher targets, and GLD has to take out 129. The reason I am still being cautious is that there is a count that can still create a larger ED (ending diagonal) in silver, making this bottom only the third wave of that ED, requiring a wave 4 and 5. But moving through 21.80 in a strong manner would have me look past that possibility and have me squarely in the larger fourth wave potential, while even watching the possibility that the bottom has been hit. But in my humble opinion, that is much less likely at this time.

And I will reiterate a point I have made in the past. I am starting to see the possibility that the metals and the equity markets begin to trade in lockstep once again. This is not to say that they are correlated, but rather that their trading patterns will be quite similar. This means that the upcoming week can see both the metals and equities make a lower low, and then begin a larger corrective rally. But just as with the equities, I would expect one more decline to be seen in the metals before a much larger rally takes hold in the fall of 2013.

Lastly, the technicals on the daily silver chart are setting up in an enormously bullish fashion, with the positive divergences in the RSI and MACD signaling that the metals are setting up a very strong move higher when these final subdivisions to the downside are completed.

See charts illustrating wave counts on silver and gold here.

Editor's note: Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

Read more:

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Long SLV, with an intermediate-term hedge.
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