The Metals Market Is Out Of Room And Time

First published on Sat Jun 17 for members of ElliottWaveTrader.net:  Now that we have moved beyond the Fed-event, many have become quite bearish the metals once again.  Many are again expecting the December 2016 lows to be tested, with just as many thinking it will be broken. 

But, what I find quite comical are those that maintain a linear perspective on the market.  Each of the Fed interest raises recently has seen the metals rally right after.  So, there were many coming into the Fed day expecting the same.  So, this is simply yet another reminder that markets do not react linearly, and that the substance of news events or Fed actions do not predict market direction.

As for us, our expectations have not changed no matter what the Fed did or did not do.  For weeks, I had been suggesting that the GDX can rally up towards the 24 region, and then provide us with a pullback. Nothing the Fed has done or not done has moved the market at all outside of our expectations. And, thus far, the market has been playing out almost perfectly, based upon the pattern we have been outlining, which you can see based upon the attached chart we had been using this week to direct us in our expectations for the GDX.

But, what this pattern now sets up is a bottoming in the near term, at least from a probabilistic perspective, which will set up a very strong rally back towards the August 2016 highs.

At this point in time, the micro count suggests that we can see one more lower low before this pullback completes.  As you can see from the attached GLD chart, the market has struck the point where the c-wave down is equal to .764 the size of the a-wave down, which coincides with the .500 retrace region of the prior rally.  However, the common target is an a=c relationship, which points down towards the 118 region, which also coincides with the .618 retracement of the prior rally, which still can be seen in a 5^th wave lower.  But, this suggests that GLD “should” stay over the 118 region, and then rally over its recent highs in the 123 region.  Once we see acceleration through 131, we should be on our way to our ideal target of 138-145, with 145 as my preferred target, before another consolidation takes hold.

In the GDX, as long as this pullback does not break below the low struck in May – 20.89 – then we have a strong set up to rally up to the 28 region quite quickly, on our way to the August high, and beyond.  And, as we move up to the 28 region, I am going to suggests stops be set at just below 24, which should not be seen again if we are indeed in the heart of a 3^rd wave.

Silver is in the same position as GLD.  If has only struck the point where the c-wave is equal to .764 the size of the a-wave down, and can still extend down towards the a=c region in the 16.30 region.  But, I would not want to see it below the 16.30 region in an ideal sense. Moreover, silver presents the one wrinkle which can extend this pullback a bit more.  As you can see, it is “possible” this pullback is only a (b) wave, with a (c) wave rally to come for just the b-wave of wave (ii).  While I do not see this as a high probability at this point in time, I will be watching how we rally out of this region to be more certain.

Ultimately, where the market now resides presents investors with a very nice risk/reward set up for those interested.  As long as we hold the May lows, the market is set up to see a very strong rally, potentially taking us beyond the August highs. 

As you know, my job is to identify these set ups, whereas it is the market’s job to either follow through or invalidate them.  Thus far, we have identified every bottoming set up since 2015 and the market has followed through strongly to the upside.  During this time, the market has been building this potential breakout scenario. We are now at the point where the market will have to put up or shut up.  There is really no more room left, for if the market has intentions of rallying in a heart of a 3^rd wave, and making a strong statement, this is the point from which it should begin.  An invalidation of this set up now potentially can see us spending the rest of 2017 in further consolidation, and taking us lower in the complex before we are able to see another set up this good.  It is time for the market to now make a decision.

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