Metals Break Out Now Or In A Few Weeks?

This past week, the GDX has finally taken out its resistance at 22.65, and provided us with some semblance of an impulsive structure off the recent lows.  However, the micro structure it is not the cleanest of structures, similar to silver. 

Yet, as long as the metals do not break below their July lows, we are again set up to see a massive break out.   While I still cannot tell you if the metals will take advantage of that set up, as they failed to do so the last time we had a break out set up, if they do not take advantage of this set up within the next few weeks, we could see a major failure to launch take hold, and drop us lower than the bulls would care for.  So, it seems it’s time for the metals to step up.

While we were appropriately looking for a bottoming in the complex in early July, the rally we have seen in GDX and silver have been quite lackluster from an Elliott Wave perspective.  I still have no standard impulsive structure adhering to Fibonacci Pinball in either of those charts.   However, what could reconcile those charts is if the market has developed as a series of 1’s and 2’s off the lows, suggesting that a major breakout could be imminent.

It will take a strong move through the 122 region in GLD to begin to believe in the series of 1’s and 2’s off the recent lows.  As far as silver is concerned, should we see a strong move through the 17.25 region, that would open the door for being in a major rally mode.  As far as GDX is concerned, that resistance would be the 24 region.  Effectively, all 3 charts would have to prove this to me by taking out their respective resistances, with strong buying volume, to convince me the melt-up phase is now finally upon us.

However, the GLD has produced a very nice 5 wave structure off those lows, which would suggest another week or two of pullback/consolidation can be seen in a wave (2), at least based upon that chart.

Additionally, many are looking at the GLD chart I have attached, and taking strong note of that red line, which is drawn off the all-time market highs in 2011.  As you can see, we have tested it many times, and have failed each time to follow through above it.  At this point in time, I can allow for one more wave (2) pullback, but that is just about it.  The market is going to have to take out that resistance with high buying volume within the next few weeks.  Should we see that, then we will likely be in a melt-up phase towards our blue box target overhead on the GLD chart.  The set-up is clearly in place for this to FINALLY happen, despite all the frustration we have experienced with this sideways consolidation in the metals complex for most of 2017.  The question now is if the market will capitalize on the opportunity before it.

Another factor I have been watching is that the Gold Miners Bullish Percentage Index (BPGDM) is still sitting quite low in the 25 region.  Market tops are often not seen until this index exceeds the 60 region, which suggests that there is still plenty of room on the upside before this indicator even begins to flash “warning.”

At the end of the day, what all this tells me is that I need to remain bullish, as I reiterated at the lows in July, despite many wanting to throw in the towel.  Ultimately, as long as the lows we struck in early July are not breached, the market is set up again in melt-up mode. 

See charts illustrating the wave counts on the GDX, GLD, and Silver Futures (YI).