Bullish Set Up Still In Place, But Caution Still Warranted

March 22, 2017

Originally published on Sat Mar 18 for members:  Last weekend (Mar 11), I noted that we needed to stay over 21.60 on Monday and complete 5 waves up to give us a bullish set up going into the Fed announcement.  On Monday, the market gave us our 5 waves up off the prior week’s low, and on Tuesday, we saw a deep retracement of that initial upside structure, which certainly scared many people in the complex. 

The morning of the Fed day on Wednesday Mar 15, I sent out a “Pre-Fed Warning:”

“. . . please focus on the simplicity of where we are.  Micro support is 21.20, with support below that at last week's pre-market low of just below 21.  As long as we hold those supports, we have a set up in place to break out.”  

As we know, the market broke out rather strongly after the Fed’s announcement.  But, please do not make the mistake of viewing the announcement as the “cause” of the rally.  Remember, sentiment was set up to take us up no matter what the Fed said.  And, the fact that we went up even though most believed that a rate hike was certainly going to cause the dollar to rally and the metals to drop provided us with another example of how sentiment trumps all supposed market forces.

But, just because we broke out, and confirmed our prior bottoming structure, does not mean that we are completely out of the woods just yet.  It is still possible that the market may rally higher in a corrective manner, which can still suggest that a test of the 19.90 region is possible in the GDX before we finally see the heart of a 3rd wave higher take hold.

As you can see from the attached 8 minute GDX chart, the market struck the upper end of the target box we set on Wednesday for a 3rd wave off the recent lows, and then came back into the support box on our chart.  The lower end of this support box resides in the 22.40 region, which really SHOULD hold if this is going to maintain as an impulsive structure, as presented in the green count on this chart.  Should support continue to hold early in the coming week, we need to then rally towards the wave 5 of (i) noted on the chart to create an even larger 5 wave structure off the recent lows to add to the bullish evidence.

However, if the GDX breaks down towards the 21.90 region before completing 5 waves up, then it strongly suggests that this rally is only corrective in nature.  And, if 21.90 holds as support, then we can still rally up towards the 24.50-26 region as a c-wave, which would set up another decline back down to the 19.90-20.50 region, as presented in yellow on the GDX daily chart.  This would represent a larger wave (2) pullback.

So, clearly, we are not out of the woods just yet. And, for those of you that have traded with us for some time, you know that we do not view markets with blinders.  Rather, we are aware of the potential on both sides of the market, and provide you with our higher probability expectations week after week.  Moreover, we even tell you up front where our higher probability expectations likely invalidate, so that you can act quickly to reposition, if necessary.

That being said, I have reiterated many times in the past that I will maintain a strong bullish bias when the market provides a reason to do so on the smaller time frame, specifically due to the manner in which the market rallied off the 2015 lows. And, this time is no different.  That is why you see the bullish count as my primary count in green.  Moreover, please see the very long term charts that Garrett Patten has been tracking (which are attached below), and you will understand why I give bullish counts the benefit of the doubt.  Therefore, whenever you read my analysis, please understand that I will present the more bullish count as my primary as long as there is a reasonable interpretation to do so, specifically based upon the larger degree structure

Yet, I also highlight the smaller degree potentially “bearish” set ups in order for you to know when you need to protect your account, especially when we get the first indications that the smaller degree primary bullish potential does not follow through.  But, for now, the market is still presenting us a bullish potential to start the upcoming week, especially in the GDX.

As far as gold and silver are concerned, again, I am going to give them the bullish benefit of the doubt as well.  But, I must admit that the potential a-b-c structure on the daily chart in silver is a close second in the running.

Therefore, I still think we need a bit more price action to be able to identify if this rally may morph into a corrective rally, thereby extending this wave (2) for potentially another month or so, or if we have finally begun a 3rd wave back towards the August highs.

See charts illustrating the wave counts on the GDX, GLD, YI, XAG, XAU & HUI.

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&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

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.

Minting of gold in the U.S. stopped in 1933, during the Great Depression.