Yes, The Metals Are Truly "Evil"

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
March 17, 2015

Some days, I sit back, and look at the patterns in the metals and think “this market is truly trying to screw every possible participant that it can.”  Along those lines, for the last several weeks, I have been warning you that the set up I am tracking is “evil in nature, as it would likely hurt the most traders/investors from a psychological standpoint.”

To remind you, the “ideal” structure for this set up would be to see metals and GDX test or even break their 2014 lows, only to immediately reverse course and begin to rally strongly higher in a c-wave towards the 2015 highs. (I will have to add that I don’t think that silver is going to break those lows, at least based upon the manner in which it is currently structured).

Again, this would get market participants very bearish, and imminently looking for that $1000 level, or lower, in gold, while also potentially stopping out those that are long the market by running the stops just below last year’s lows. The rally, which would be a c-wave, would be quite strong and impulsive, making market participants think that we just had another “successful” test of the bottom, which would cause shorts to frantically cover, and formerly stopped out longs to chase the market back up again.

To the broad market, it would make them believe that the bottom is in, and the seemingly parabolic nature of the c-wave rally would cause them to become overly bullish, yet again. (It seems they don’t learn their lesson).  Right now, I don’t think the market is bullish enough to support a strong drop to the levels I am looking towards in a wash out, nauseating type of decline.  Therefore, I think this potential c-wave rally would set up the final decline quite perfectly, as it would create extreme bullishness.  It would then set up the wash out of the remaining bulls who have held for the last year, along with the newly inaugurated bulls who would be chasing this c-wave higher.

Yes, this pattern, should it play out, would hurt the most people possible in this market on both sides of the trade. And, as I have said in our Trading Room at Elliottwavetrader.net, I am quite certain that when I suggest we are topping and about to head to lower lows, the expected strength of the c-wave higher will have even convinced many that the bottom is in, and I will experience heavy pushback when I suggest people short the market one last time. And, yes, this will surely happen even though I am warning you beforehand of what it will look like at the top of the c-wave rally.  But, such is the nature of market sentiment, and when you really understand it, you are able to rise above it rather than being caught within its clutches.

With regard to support, the maximum I would want to see the GLD drop towards in order to maintain this as an expanded (b) wave count is 106, with the 108-108.64 region as ideal support.  As far as silver, I don’t think we will break down to the low 14 region, and will likely remain over the 14.50 level.  As far as GDX, the ideal target is in the 16.50 region, but, it also has potential to just undercut that level as well.  However, should we see strong breaks below these levels, then it makes it more likely we are on our way to the final lows much sooner than expected.  But, again, that is not my expectation at this point in time.

As far as resistance levels, as long as silver remains below 16, GLD below 112 and GDX below 18.90, I will think we have further downside in these charts for this (b) wave.  A break out over these regions in an impulsive manner would make me believe that the (b) wave of the bigger b-wave has completed, and we are heading higher in a (c) wave of the bigger b-wave in GDX and GLD, and the wave iv in silver.

And, as I have said before, should I be wrong in my expectations for a rally to begin soon, and, instead, we head down to the depths at which I believe we will mark a long term bottom, then you should be looking at the market from the “buy” side, rather than the “sell” side.

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Courtesy of ElliottWaveTrader.net

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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