Are You Still Waiting For A Pullback?

February 7, 2017

First published Sat Feb 4 for members of ElliottWaveTrader.net:  As the majority of the metals market seems to be awaiting a “pullback,” the metals market, like the equity market, has been quite stingy.  But, as I noted in my mid-week update, “by no means am I going to say that I “expect” more of a pullback to be seen, as the minimal number of waves are in place right now to support a break out in the complex within the next few trading days.”  I am still of the same perspective.

On Friday, I did an interview for a financial show, and prior to that interview, the interviewer me told me that most of their guests, who are normally bullish the metals complex, do not think that the metals are going to be breaking out anytime soon.  In fact, he was quite surprised when I explained to him that I see a set-up which can ignite a strong rally in the metals complex at any time now.

Last weekend, I noted that the market has a very bullish set up in place.  And, with silver breaking out over 17.50, it certainly has placed a very bullish potential (1)(2)(i)(ii) structure on the metals market, making the heart of a 3rd wave break out potentially quite imminent.

The issue with high level consolidations as compared to traditional pullbacks is that the market can easily run away from you if you do not see the potential break out set up.  That is what happened back in early 2016, and we have the set up for a repeat performance in 2017. 

You see, normally a 2nd wave will pull back to the .618 retracement region before rallying strongly in a 3rd wave. And, that is where most of the market waits to buy. Thus far, the deepest any pullbacks have been since we bottomed in December of 2016 is a .382 retracement.  Yet, this is often what the metals do.  When they turn very bullish, they offer no “gentleman’s entry” and force most to chase.   So, as most seem to be expecting that the metals are not going to be breaking out “any time soon,” it would seem we certainly have a set up in place to see the metals breaking out very soon. 

For quite some time now, silver has been providing us with the “keys to the kingdom” in the metals market. It has provided us with the clearest indications of the next move in the metals market.  In fact, silver again provided us strong advance notice of the bottoming we saw back in December of 2016.  And, now, it is lighting the way with the potential break out scenario that may catch many sleeping at the wheel.

As you can see on my 144-minute silver chart, we have what can be a completed (1)(2)(i)(ii) structure off the lows.  Clearly, the market can still support another c-wave down towards the 16.70-16.90 region for a more full wave (ii), but, right now, any break out over 17.85 opens the door to a strong spike directly to the 19 region.  So, as long as we remain over the 16.70 level, you should maintain a very strong bullish bias. 

And, should we break out over 17.85, you may move the stops on your longs up towards the 17 region, for a failure to follow through over 18.20, with a break back down below 17.40 (once 18.20 is struck) would open the door to breaking back below the December 2016 lows.  But, that is not my expectation, as the break-out set up to 19 is quite strong at this point in time.  However, since there are no guarantees in non-linear markets, one has to ALWAYS be prepared that we could be wrong, and we must know what to do in that event so profits are not lost on “hoping.”

Now, I constantly get questions about the GLD, and my answer has pretty much been the same all year.  The GLD is not as clean or clear as the silver or GDX charts, so I have been relying on the clear charts to guide us the way for quite some time.  This was even the case in the decline at the end of 2016, when the GLD went far deeper than I had initially expected, yet the GDX and silver charts kept me solidly bullish as we bottoming in December.  In fact, the GDX chart was the reason I expected at more than 10% rally off the bottom and rather quickly, when then turned into a more than 30% rally off that bottom.  So, I will continue to look for guidance from where the market provides strong guidance, and the silver and GDX charts seem to be playing that role.  For now, all I can say is that as long as 111.50-112.50 is held as support in GLD, it is in a very bullish posture.  And, a strong break out through 118 opens the door to the 124 region next, on our way back to the 130 region to complete wave 1 of iii.

This now brings me to the GDX, about which there is nothing bearish that I can say with any reasonable sense of probability.  The chart is bullish.  Sure, it can provide us with some pullback, but, at this point in time, I would have a hard time seeing the market breaking back below 22 on any pullback.  Of course, the market can do whatever it wants, but, again, the chart is looking quite bullish.  In fact, any immediate and strong follow over the 25.10 region is pointing to a minimum target of 26.90, but, more likely, the 28 region, before the next consolidation takes hold.

Alternatively, due to the small pullback’s seen in the complex, we may still see more of a pullback in what I note as my alternative count, with a bigger wave (2) to be seen, making the recent highs only wave (1) off the lows.  I know this has been a hotly debated matter within our trading room at Elliottwavetrader.  However, the main reason I view this as the lesser likelihood at the time is because the larger degree pattern, within which the smaller degree patterns “should” fit, would suggest the more aggressive (1)(2)(i)(ii) count is more likely at this point in time.    

Now, to be completely honest, I cannot say that our EWT Miners Portfolio is 100% invested just yet.  Since exiting most of our positions back in September when GDX was in the 28.50 region, we have been building our positions back up in November and December of 2016.  But, since our decisions are mostly based upon the individual charts we prefer, there are still a few that do “need” a bit more of a retracement before we enter our final trades.  So, at this point in time, we still have approximately 20% of cash to still deploy. 

If you remember back in December, as most in the complex began to turn to the dark side and strongly believe again in levels below $1,000 in gold, I turned quite bullish on this complex again, expecting a strong rally to imminently take hold.  Currently, I remain quite bullish this complex, and feel that many may be surprised by the strength of action in the metals complex the next time silver is able to overcome the 17.85 region.   But, since I understand that markets are non-linear systems, I will be watching the pattern, along with support, rather carefully and will certainly alert all our subscribers at Elliottwavetrader.net immediately should I see any inkling that my expectations could be wrong. 

See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201702051487.html .

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at: info@elliottwavetrader.net.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.