The Precious Metals Complex Is NOT In Alignment Yet

First published on Saturday April 15 for members:    With the break-out over the prior week’s high, we now have structures in gold and silver off the March lows which can be considered strongly impulsive.  And, as I have noted many times in the past, if there is a reasonable bullish interpretation to be seen in the metals complex, I will certainly be adopting that as my primary perspective.

However, while GLD and silver can be counted as just completing their 5 wave structures, I want to warn anyone who is going to attempt to trade downside that we are setting up in the heart of a 3^rdwave.  That being the case, there is potential for the market to continue to melt up in the heart of that 3^rd wFave, which is actually the position we see in the GDX currently. 

Silver seems to be chart that is most suggestive of needing a pullback in a wave 2.  We just barely held support last week in a 4^th wave, and made a higher high in this past week’s action, which has now given us 5 waves up off the March lows.  That strongly suggests that silver “should” see a pullback, which I am counting as a wave 2.

When we turn to the GDX, the most bullish interpretation has us in wave 3 of (iii) of (3) of wave 1 of iii, as shown on the daily chart.  When we turn to the 8-minute chart, you will see that the market is now approaching a confluence of 1.00 extensions in the 25 region. What this means is that as long as the GDX holds the 24 level on any pullbacks right now (.618 extentions), we can maintain a strong bullish bias in the GDX, which is pointing up towards the August highs in the current set up.  Alternatively, if the market breaks below 24 in an impulsive manner, then we have to keep an open mind about the potential for the yellow count to take hold, as we have been watching for several weeks right now.  So, GDX is truly at a critical point in this uptrend.

As far as the GLD is concerned, it really looks quite bullish on the daily chart.  The technicals have all turned up and look quite strong.  And, to be honest, I am unsure which is the more correct way to view the chart now, as it lends itself to the same interpretation as the GDX, as well as silver.  If GLD continues to accelerate through the 126 region in the coming week or two then we are already in the heart of wave (3) of 3 of iii, and heading to the 138 region.  This would align it with the GDX more bullish count.  For this to confirm, again, I would like to see a strong move through the 126 region, with the MACD breaking out over the downtrend line on the daily chart.

However, if GLD will follow the silver chart, then I would expect a pullback over the coming weeks, which should simply re-test the last break out region in the 118-119 region, as presented by the green count on the daily chart.  

As I noted this past week in our mid-week update, since the market bottomed almost a year and a half ago, every pullback we have seen has been quite deep.  It seems that they have been almost “designed” to scare people out of the market by making them believe the bear market has returned.   However, as this bull market progresses, pullbacks will become very shallow.  This will cause the parabolic runs we often see in the metals complex, as investors will be forced to chase price, since they have now been trained to look for deep pullbacks. While I am not certain that this is what we will see for the pullback we may soon see, I think we have to be watchful for this potential. 

Now, once all the products in this complex prove themselves to be within the heart of a 3^rd wave up, then I think we can begin to trade this complex much more aggressively to the long side.  But, until that happens, there can still be some pitfalls which can push out that break out a bit longer in time.  So, I will reiterate my warnings about being over-leveraged in this complex (by using leveraged ETF’s or aggressive options strategies) until the market has proven itself.

See charts illustrating the wave counts on the GDX, GLD & YI.