Is The Recent Consolidation Signaling A Top In The Precious Metals Complex?

First published Sat Aug 13 for members: This past week certainly saw a lot of action in the metals, but we did not see any real movement by the time we closed the week.  In fact, gold and silver ended near where they began for the week, whereas GDX did have a little upside progress on the week.

And after each consolidation we have experienced during 2016, voices are raised about us topping.  Many believe we have come too far, too fast. However, each consolidation we have seen throughout the year has only led us to higher prices.  So, in truth, I cannot accept the premise that the market is topping unless some amount of upper support is broken. 

You see, we have not had any pullbacks which have exceeded a 0.382 Fibonacci retracement of the prior move throughout all of 2016.  And, such strength is not suggestive of a weak market.  In fact, it states loudly and clearly that this is an incredibly strong market, and one which we cannot assume is about to break down.  Moreover, as I have noted, these shallow retracements have even made it a bit more difficult on us analysts: 

Now, normally, we see 0.500-0.618 Fibonacci retracements for 2^nd waves, whereas 4^th waves usually retrace 0.236-0.382 of the prior move.  And, the deeper 2^nd waves provide us with clear guideposts for the larger count.  But, when we have had the decimation we experienced from 2011-2015 in the complex, it is not unusual to expect that even 2^nd waves may only provide us with 0.236-0.382 retracements, which I warned could be a strong possibility even before we began this rally in 2016.  And, this seems to have been the nature of the market since we rolled into 2016. But it does lead to a bit more uncertainty due to having to accept higher 2^nd wave retracements, which make it hard to discern between 2^nd and 4^th waves.  

So, while many are getting nervous in their long positions in this market simply because we have not been able to break out this week, may I remind you that not only have we not broken down, but we have not even had more than a 0.382 retracement this year.  Moreover, most of the positions you are in (assuming you have been following our analysis for the last year) are well over 100% profitable this year alone.  So, you have plenty of cushion to continue to follow Mr. Livermore’s wise words:

 “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”

So, as I noted last weekend, I am suggesting you continue to sit tight as long as the GDX remains over the 29 level, GLD remains over the 123.50/124.50 support region, and silver remains over the 18.80/19 support region.  And, as always, if there are any changes to what I am seeing in the charts, I will be sure to send out a mid-week metals update to alert you all to any changing circumstances. Remember, we are dealing in probabilities, not certainties.  So, while my primary expectation for us to be heading higher is at an estimated 70% at this point in time, that still does mean there is a 30% potential that a deeper retracement can take hold in the coming weeks. 

RECENT UPDATE FROM WEEKEND:   Lowering bullish support down to 28.50-29 on GDX.

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See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201608141346.html.

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