Corrective Rally Continues
On Wednesday, I published a mid-week metals update for members that said that “I have no reason to go short this market yet,” and that “I intend to ride this rally up.” The next day saw gold and miners rally quite strongly. And, as usual, we are hearing from most market participants about how the metals are “finally” breaking out.
But, as I have noted in the title, this is likely just the continuation of the corrective rally off the lows, which will set us up for the final decline in the market in the not too distant future.
Now, I have gotten many questions about how certain I am that a lower low is still going to be seen. To answer this question, I will tell you that I would have to rely upon a truncated 5th wave within a truncated 5th wave to consider that the bottom is in. To rely upon one truncated 5th wave is enough of a lesser reliable bottoming, but to have a truncated 5th wave to that truncated 5th wave makes the reliability of a final bottom in the sector quite low indeed. Is it possible? Certainly, as I am not saying it is impossible. But, I am saying that the structure makes is highly unlikely at this point in time.
Currently, the GDX and GLD seem to be in a minor 4th wave pullback, suggestive of higher levels still to come. However, silver almost looks like it is tracing out a triangle. But, I would not put it past silver to strike a late inning rally to give us a higher level wave iv. So, in the upcoming week, as long as GDX remains over 14, and GLD remains over 104.50, I will be looking for the GDX to rally up to the 15.50 region, and the GLD to rally up to the 107-107.75 region.
Once these instruments reach these targets (or first break cited support), I will be looking for a 5 wave decline to set up the final run to lower lows. As I mentioned during the mid-week update, the next, and final, decline should be an impulsive 5 wave structure, so it should be much easier to identify the point at which we are bottoming. However, the trick is going to be identifying the point at which we begin the run to the lower lows. And, we can begin that identification process once we strike our higher targets to complete the 5 wave c-wave, or upon a break of support. For now, my expectation is a bit higher.
I would like to conclude with one last point this week. Again, as I have noted above, I get asked all the time whether I am certain that metals have a lower low. While I have provided my answer above, I want to add one more point. You see, the last segment in the GLD has been a very long and drawn out ending diagonal structure. When those conclude, they usually do so with a spike down, followed by an even stronger spike in the opposite direction, which then triggers a relentless short covering rally, and buying spree. I will tell you that once we do strike the bottom, you will not likely be asking me if the bottom has been struck. You will be likely able to ascertain that on your own based upon the clear price action which I am expecting once this ending diagonal completes.
See charts illustrating the wave counts on the GLD, GDX, and YI.
Jan 9, 2016
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.