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Corrective Action Continues – But, A Rally May Still Be Seen

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
April 6, 2016

I have said many times before that trying to track every twist and turn within corrective action is like trying to throw Jell-O for distance . . . you just won’t be able to get it all.

While impulsive structures under the Elliott-Wave patterns are quite predictable, very often down to the penny, corrective action is quite variable, and nowhere near as predictable.  Currently, we are likely within a corrective wave two off the lows in GLD and GDX, and the action is quite difficult.

But, the major issue I am now seeing is that silver is still showing signs that it may be setting up for lower lows.  In fact, we have a rather clear 5 wave structure down off the recent highs in silver.  While we can consider it as an a-wave in a wave ii or even as a c-wave in an expanded flat in a 4th wave, as long as we remain below the recent highs, and the next rally is corrective, I am looking for silver to drop to the 12-12.75 region to make lower lows. The only way for silver to invalidate this potential is to push to a higher high over the 16.18 level, even by a penny.  But, as long as we remain below that level in the near term, I am targeting the 12-12.75 region for a lower low.  As the pattern develops, I will lower that invalidation resistance level.

Now, while I can also count the GLD as a 5 wave leading diagonal down, I do not trust leading diagonals as trading cues, as they are not terribly reliable, at least in my humble opinion.  But, the alternative leaves me with a completed a-wave bottom, and an expanded b-wave flat still in progress – also not the most reliable of patterns.  So, while I think silver has a better than 50% chance at making lower lows, I think GLD only has a 35-40% chance at making lower lows.  If we can see a solid impulsive structure develop off Friday’s low, it will give significant weight to the expanded b-wave perspective, rather than a set up to lower lows.    

So, as long as we hold the 115.50 level in the GLD, I would like to see a rally to the 119.25-121 region in a 5-wave (c) wave, which would complete a b-wave.  While I think it is more likely than not that we have seen the final lows in the GLD already – within 2 points of the ideal 98 target I set years ago – I do maintain an estimated 35% probability that a lower low may be seen.  Moreover, I do not have a reliable pattern pointing me to a lower low at this point, as I do in silver.

GDX also seems to need a rally before its b-wave is done.  In fact, I have quite a wide target for a higher b-wave between 21-22.30, and it will depend on the size of the impending 3rd wave in the (c) wave higher before we can pinpoint the target a bit better.  Ultimately, as long as we remain over this past week’s low of 19.32, I see a set up developing for a (c) wave into our target, which may even result in an expanded b-wave high, which can be higher than the top struck for wave i.  I think this may confuse many people, and have them view this as a break out in the GDX.  But, as long as we remain below 22.30, any higher high is likely part of an expanded b-wave structure, which is what I would prefer to see, as it supports a strongly bullish bias in the GDX.  But, keep in mind that as long as we remain below 22.30, it is only setting us up for a drop in a c-wave for wave ii, which will likely be another buying opportunity.

What is interesting is that all three charts seem to be setting up for a rally in the upcoming week, with silver seeing a potential wave 2 rally, whereas GLD and GDX needing a (c) wave in a b-wave rally.  These should be followed by a strong decline in all 3 charts in the coming weeks, with silver seeming as though it is the only chart set up for a lower low, that is, as long as remains below 16.18 on the coming rally.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201604031219.html .

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&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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