Everyone Wants A Pullback

First published Sat Jan 14 for members of ElliottWaveTrader.net:  It really is amazing how much difference a few weeks can have on perspectives in the market.  Back in mid-December, many were writing me off for looking up in the market, as I stood quite lonely amongst the bearish masses while maintaining one of the very few bullish perspectives in the market.  In fact, not only was I maintaining a bullish bias, I even suggested that the GDX was on the cusp of an imminent 10%+ move.  Since that time, not only did we see the expected 10% move, we have risen 26% off the lows in the GDX.

As I wrote this past week to our members at Elliottwavetrader.net, we had a very important development in the metals complex:  silver completed what looks to be 5 waves up off its last lows, but with a lesser reliable leading diagonal pattern.  Since the GDX has a rather clear 5 waves up off its lows, I am willing to be more “accepting” of the leading diagonal count in silver, even though I normally do not rely on leading diagonals as a clear signal.

This latest development in silver makes me a bit more confident that the lows for this complex could very well be in place, and that the next major trend has begun.  But, now that we have seen a nice impulsive rally off the recent lows in the complex, the bears are looking for the market to drop even further, whereas the bulls are looking for a pullback.  That means that both the bulls and the bears are all now looking for the market to drop.  And, the problem is that when BOTH sides of the market are looking for the same thing, I suggest that we all be very aware of the potential for this market to continue to head higher.

The one chart which suggests there could be much more potential bullishness than most expect is the GDX chart. While my ideal scenario would be looking for a bit more of a pullback in the GDX, as presented on the attached 8-minute chart, should we break out to higher highs sooner rather than later, it could suggest that we are heading to the 29-31 region a lot sooner than most expect.

Thus far, the decline we have seen from the high struck on Thursday has been overlapping, thereby making it unreliable to bank on further declines.  While a c-wave would normally develop as a standard 5 wave impulse, I cannot say that the downside from Thursday’s high has been a clear impulsive structure down.  Therefore, this overlapping pullback has opened the door to the potential we simply head higher from the bottom struck on Friday.  So, for now, I will maintain the primary count that the market should drop into the 21-22 region before it completes wave (2).  However, if we see a strong rally taking out the high struck this past week, do not assume you will see a 21 handle again.

As far as GLD is concerned, I have noted many times that the rally off the lows has been quite amorphous, and really not sporting a clear impulsive pattern to which I can point.  However, the rally which began off the 2015 lows did the same.  Additionally, take note of the MACD histogram on the daily GLD chart, which evidences what may be the strongest “technical” move up in GLD since we bottomed in 2015.

Moreover, the pullback seen on Friday off the high was overlapping, as seen in GDX, whereas the rally at the end of the day does look a bit more impulsive.  This could also suggest that GLD may be setting up to surprise a market which is looking for a drop in price.  But, as long as it holds over the 109.50-112 support region, I can maintain a bullish bias on this chart.

In the bigger perspective, I will be much more comfortable with the count once GLD reaches the 125-130 region for wave 1 of wave iii, as that would be a major bullish indication for the complex for the remainder or 2017.  Until then, I am going to put much more emphasis in the silver and GDX charts for clues about the complex.

Lastly, as noted earlier, silver has followed through its initial resistance and completed a leading diagonal off the lows.  As noted in GDX, it too may have a wave (2) completed at this time, as outlined in yellow. But, as long as it holds over the 16.20-16.35 support region, I will maintain a bullish bias on this chart.  The next major trigger for silver is a strong break out through the 17.50 region, which would also take it through its next down trend line.  Once that occurs, we are likely set up to rally back up to the 19-20 region for wave 1 of wave iii. 

In conclusion, while there is room for the complex to still pull back some more in the coming week, it would seem that this is what most of the market is looking for.  And, when the bulls and the bears are aligned for the exact same action, the market often disappoints the great majority.  So, while the primary count will remain as noted on the charts, I am going to be on high alert for a break out which can potentially propel us much higher than the majority currently expect, which will likely cause the next “great chase” as some serious FOMO kicks in, along with major short covering. 

For this reason, I will not wait until Wednesday to put out the next major mid-week metals update to the EWT subscriber base should we see price action suggesting that the more immediate break out scenario has potentially begun.

See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-201701151469.html .