Are The Miners On The Verge Of A Correction Or About To Go Parabolic?

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
May 4, 2016

I never suggest trading on emotion, yet the “fears” I expressed last week may be developing as the reality on the ground.  With the continued strength this past week seen in the miners, one has to question whether the more immediately bullish “green count” is what is in play, with us heading directly to the 40 region without any further 2nd wave retracements. 

While I still would prefer to see an appropriate wave ii correction take hold, the market does not care about what I “prefer,” so we have to follow the market’s lead rather than fight it.  Remember, we don’t control the market, and despite what most believe, no one does.  But, the market does provide clues that we need to follow, even if it does not meet with our ideal expectations.

Last week, we were looking for a signal that a deeper correction would be seen, or if we were heading into our resistance box:

in order for me to believe the “correction” has begun in GDX, and the overhead resistance will not be struck, we will need to break down below 22.20 to make it less likely that this drop is a 4th wave in the last 5 wave structure higher.  Moreover, any strong break out over 26 in GDX places me in the green count, and in the heart of wave 3 of iii, and on our way over 40.

This past week, the GDX spiked down to the 22.19 level during premarket action (with 22.37 as the low struck during trading hours), and reversed strongly to begin this current rally, with us now pushing up against the 26 region resistance. Clearly, support has held, and we saw upside follow through into our target/resistance box.  So far, the market is respecting our Fibonacci Pinball levels to the penny.

The strength seen during the last week is making everyone quite nervous that the metals will never see another correction again.  And, what is amazing is that, just 6 months ago, the sentiment pervasive in the market was pure disbelief that the metals could ever rally again.  Isn’t it amazing how market sentiment works?  Yes, people became too bearish at the end of 2015, which was one of the reasons I continually questioned the common expectations that gold was “certainly” going to drop below the $1,000 level, similar to the way I questioned that it was “certainly” going to break out over $2,000 almost 5 years ago.

For now, the GDX is pushing up against the .764 extension off the lows.  Should we see a strong move through 26, it is our first indication that the more immediately bullish scenario is playing out, with confirmation seen through the 1.00 level in the 28 region.  That would have us targeting the 34- 37 region for wave iii, but, more ideally, at least the 40-43 region for all 5 waves off the recent lows.

As I noted last week, “the toughest part of a new major trend, from an Elliott Wave perspective, is determining where waves i and ii reside, as the targets for waves iii, iv and v are all based upon waves i and ii. And the difficulty is compounded in the metals market since retracements are often so shallow. . . . so I am trying to be more cautious about upside surprises than I normally would be (which is presented in the green count).”  And, clearly, since all retracements thus far have been extremely shallow, it has not provided us with a clear marker to be more certain that wave ii has completed.

As for silver, it held its support rather well, and continued its upside climb.  Upper support is now at 17.45, with 16.90 below that.  As long as we remain over support, I will continue to look higher towards 18.55-19 next to complete wave (v) of 3.  However, a break of support opens up several possibilities, as discussed last week, of which I will update in a mid-week report should such a break down occur. 

In the GLD, the market did follow through with the rally we wanted to see, but it has moved higher than our initial preference for a b-wave in the wave ii.  Should we continue a little higher in the coming week towards the 125 region, then I would have to view it as a 5th wave for wave I off the low, as noted in blue.  However, should we see a further move through 125, with follow through over 130, then I would have to adopt the much more bullish scenario that this is already the major break out and we are in the heart of the 3rd wave higher, with all 5 waves pointing to a minimum target of 160, but, more ideally, the 165-175 region.

Again, my preference is still for a true pullback/consolidation for a wave ii, but as I noted last week, we have to respect the bullish potential in the metals market, especially after a 5 year correction has potentially completed:

Ultimately, if this were a “normal” chart, and I was not concerned about the parabolic nature in which metals react, I would easily classify the current count as topping, or having topped already in wave i in blue, and would be looking for wave ii to take us another month or two to complete. However, there are still so many market participants who missed the bottom (as they were clearly not following our “BUY BOX”), and many are still waiting for sub-$1000 gold.  Maybe they are right, since we still do not have a confirmed bottom in place with a greater than 80% probability.  But, in my humble opinion, I still believe there is a 65% probability that the bottom has been struck in the GDX, so, it seems more likely than not at this point in time that the bull market has returned.  

Therefore, should the GDX see that strong break out through 28, it provides us with very strong confirmation that the long term bull market has likely returned, and takes me up to an 80% probability on that perspective.  So, I have added a “market pivot” box on the GDX chart.  If we have a confirmed new bull market, a break out through that pivot should not see the market come back down through the pivot once the market moves through the 28 region.  And, should we see such bullish confirmation, I will likely be targeting the 40-43 region within the next 6-9 months, which will represent a larger degree 1st wave off the market lows.  This will set up the next major long-term buying opportunity after a multi-month wave 2 takes shape into early 2017, which will likely take the GDX back down towards the 30 region, as a rough estimate at this point in time.

See charts illustrating the wave counts on the GDX, GLD and YI at .

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, 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. You can contact Avi at: [email protected].

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