Another Potential Third Wave Set Up In The Making

First published Sat Jul 30 for members of ElliottWaveTrader.net:  In Elliott Wave parlance, 3^rd waves are the segment of a trend move which provides the strongest market action.  This is why we are always on the “lookout” for the set-ups for 3^rd waves.  Whereas silver has already seen the heart of a 3^rd several weeks ago, we now may be setting up for one in the GDX and GLD.

Before we came into the past week, the market looked like the downside we have recently experienced was not yet completed, as I noted in the last weekend update:

“While I still maintain my primary larger degree expectation that we are on our way to our higher targets noted over the last several weeks, the drop has finally caused me to place an alternative count on our chart, which is represented by the GDX blue count.  Again, while I want to reiterate that my primary perspective is to still be looking up, I am going to recognize the possibility that we go down a bit more early in the upcoming week before the next rally takes hold, as presented on the 8 minute GDX chart.”  

After the GDX saw further downside early in the week, as expected, it completed its downside structure with a truncated ending diagonal, which is not the standard way downside structures complete.  Yet, the market provided us with a nice 5 wave structure off that low, and the next impulsive structure has been developing since.

On Wednesday, after the Fed announcement, the GDX struck its 1.00 extension off the lows, and I sent out the following update, noting the important juncture the market was at:

“Even though the bottom we struck the other day was complete with a truncated 5th wave ending diagonal (not terribly common), the GDX pushed higher into today, and has a set up to truly break out for much higher targets, as noted on the daily chart.

But, as with most set ups, they must see follow through in our Fibonacci Pinball structure.  And, this one is no different.  You see, once we hit the 1.00 extension off a bottom, the market is at a point of inflection.  If it is an a=c corrective rally, then the first clue is a break down below the .618 extension.  However, if the market is going to continue to complete an impulsive structure off the low, and maintain a bullish stance, then it will hold over the .618 extension, and continue on to much higher extensions. This is probably one of the most powerful aspects of Fibonacci Pinball, in its ability to provide early warning signs between an impulsive structure and a corrective one.  This is the turning point that provides that guidance.

As of the close, the GDX hit its 1.00 extension off the low.  Therefore, it really “should” hold over the blue box on the 8 minute chart, and continue higher towards the 31.50, which will likely be wave (i) of wave 3 of iii, with an ideal target in the 39 region.

However, should we break below the .618 extension, it opens the door to this being a corrective rally, and the market can then drop down towards the 26 region (a=c on the downside) for a bigger wave 2.”

As I noted many times that day and the next, 29.25 was the support I was looking to hold to maintain the Fibonacci Pinball structure higher.  And, on Thursday, the market dropped right down to 29.24, and continued within its impulsive structure higher.  So, I do apologize that I was off by one penny.

At this point in time, you can see the raised support region presented on the 8 minute GDX chart.  As long as we do not break below that support, and ideally remain over the 1.00 extension at 29.87, then I will be looking to complete 5 waves up off the recent low, which I would classify as wave (i) of wave 3 of iii.  That suggests that after a corrective wave (ii) pullback is seen, and we then break out over the top of wave (i), the market is well on its way into the heart of its 3^rd wave, and targeting the 39-41 region next.

Alternatively, a break of the support box before we complete 5 waves up suggests that we can still head down towards the 26 region in a more protracted wave 2, but that is only the alternative at this time.

As far as silver is concerned, I would like to see us remain over 19.55 at this point in time, as it, too, seems to be completing a wave I of wave (v) of 3 of iii on its chart.  So, yes, silver seems to be a bit ahead in its structure, which is likely the reason it has lagged the GDX recently.  But, under all circumstances, as long as silver remains over the 18.80-19 region, I still remain in bullish mode.

This brings me to the GLD.  And, to be brutally honest, I do not have a pattern I am confident in regarding its structure off the June low.  However, I am going to use GDX and silver to provide more guidance regarding the complex.  Yet, I still need GLD to begin to accelerate higher and take us into the heart of a 3^rd wave, as I do in GDX.  Therefore, as long as we remain over this past week’s low, I am still going to maintain a minimum 137 target on GLD, with my preference being the 142-145 target region for wave 3 of iii.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201607311333.html .