first majestic silver

On The Cusp Of A Major Break Out

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
June 29, 2016

First published Sat Jun 25 for members of ElliottWaveTrader.net:   I am starting this week’s update with a mini-rant directed towards the manipulation theorists.  For years, they have complained that one of the facts supporting their market manipulation theories is the “overnight” drops we have seen in the market, so I would like to take a moment to address that. 

First, does this not ridiculously assume that “overnight” is the same for traders of gold all over the world?  (This is just another instance of how American manipulation theorists believe they are the center of the universe).  Let’s also not forget that the market was within a correction, which means that “surprise” moves are often to the downside, just like in bull markets surprises come to the upside.  But, no one seems to complain about it when it happens to the upside, do they?  And, let’s not forget that commodities all over the world were also in a long term correction and saw similar declines.   Being a manipulation theorist means you must ignore all these facts which point to the logical conclusion that the metals simply entered into a correction that the manipulation theorists did not or could not foresee.

And, now, we saw gold rally almost $100 overnight on Thursday night.  Does this mean that gold is now being manipulated to go UP?  But, I thought all the manipulators have been heavily short?   So, not only is the market now being manipulated to go up, but it is being manipulated in the opposite direction in which the manipulators are positioned? 

Damn, where is GATA when you really need their “logical insight.” 

But, alas, GATA has stated many times that making money is not their goal.  So, I will publically make an offer to GATA:

Feel free to send all those who want to make money in the metals to us at Elliottwavetrader.net, and we promise to send all those who are not interested in making money to you.  

One other market perspective which is taken as gospel is that gold moves in the opposite direction as the dollar.  I have been warning that one should ignore this commonly held perspective, as I think we have the potential for this commonly believed inter-market perspective to break down, and at a very crucial time.  Is this not what we saw this past week, as the two moved together in almost lockstep?

I also want to re-post what I wrote in the mid-week metals update regarding the COT report, which seems to be widely discussed:

On another note, much has been made about the HUGE COT commercial short positions in place now, which suggest to those that read those tea leaves that the market is going to drop in a big way.  Maybe they are right, and, if you are like me, you had the opportunity to appropriately hedge for that potential when we noted so last week.  But, the commercials have not always been right.  And, to be honest, I would almost expect someone to be HUGELY on the wrong side of the start of a major 3rd wave.  Remember that price action in the heart of a 3rd wave is usually breathtaking.  And, in the metals complex, we should expect that even more so.  That means that someone is going to be massively on the wrong side of that move, and the short covering will be part of the fuel that will propel the heart of a 3rd wave higher in a most dramatic price spike.

So, the fact that we have a 3rd wave set up is much more important to me than the way the commercial traders are positioned.  Moreover, if you are like me, you should have no problems sleeping at night with your long term positions in place (and, I am not in any long options, only stock until the long term bottom is confirmed), and all appropriately hedged.  The market will ultimately provide us with a long term bottom confirmation, but it has not yet happened, so one has to just take a step back, and look at the market from a non-emotional and reasonable perspective, which you must apply to your overall positioning.

So, while everyone will likely view Brexit as the “cause” for the rally in the complex, the market has been telegraphing a big upside move, as it was set up for the heart of a 3rd wave higher.  In fact, Zac and Garrett were busily adding positions in our EWT Miner’s Portfolio on Wednesday and Thursday of this past week, and now have appropriately placed stops to protect those newly added positions.   Moreover, we have been moving into those miners which we view as having the potential to outperform within the next rally stage, should it take hold. 

And, as I noted so many times in the past, during these 3rd waves, we see large upside gaps, and we certainly had one on Friday.  But, this cannot be a one-and-done type of gap event.  Rather, these 3rdwaves often see several large gaps.  So, if we are truly breaking out, this MUST follow through strongly to the upside in the coming week.  And, yes, that is a MUST or else another 2nd wave pullback will show up before the market is prepared for that inevitable 3rd wave break out scenario.

Remember, what will tell us that this is the heart of a 3rd wave, rather than a fake out, is a massive volume move higher, with sideways consolidations and strong upside follow through.  Third wave action is often breathtaking, and, for most, “unbelievable.”  Some will even view it as almost “impossible.”  But, it forces the shorts to cover, and those not already positioned on the long side to chase.  This is the point of recognition which powers the market up during one of its strongest phases within a 5 wave structure.  So, again, we are at a very crucial point, as this is the type of action which must take hold over the upcoming week to make it clear to all market participants that this market is going much, much higher and fast.  Anything less at this point in time is a strong warning that yet another pullback/consolidation may be seen.

I have written many times in the past as to why I have gravitated to Elliott Wave analysis over the course of my investing career, especially after learning so many of the other methods out there.  The ability to recognize the set ups for these types of moves and inflection points can only be gleaned within an Elliott Wave structure, which tracks market sentiment.  Other methodologies can provide their own clues, but nothing offers the overall picture, and provides objective levels of validation and invalidation based on price levels for break out and break down as does Elliott Wave, which we have enhanced with our Fibonacci Pinball method.  And, those that have followed us in the metals through the almost 5 years we have been open at Elliottwavetrader.net have learned that well, as we have navigated these difficult waters better than most.

So, in the upcoming week, what we MUST see is STRONG upside continuation.  That is the hallmark of a 3rd wave, and that is what the market must prove at this point in time.  We are at a potential point of recognition, and the market must force those on the short side to “recognize” the error of their ways if this is truly going to slam the door on the “lower-low” camp.  This is the point in time where it has the opportunity to do so.  And, if it chooses not to do so in the upcoming week, then another downside consolidation will likely take hold, and it may even be the larger degree wave ii. 

Again, markets are not linear, so we will never know for certain what will happen.  So, I cannot tell you that the market will certainly provide us with the breathtaking upside action seen in a 3rd wave just yet.  However, I can certainly tell you that the setup is in place.  The market will tell us very soon if we are in the heart of a 3rd wave, or if a larger degree pullback/consolidation will be seen over the next few weeks. 

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201606261307.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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