How High Can The Metals Continue To Push?

First published on Sunday Oct 15 for members:  Despite my warnings of caution in the metals complex over the last month, we expected to see a rally begin over the last two weeks. Thus far, the market has complied rather well.  But, the question is how high can we continue to rally?  And, based upon the market’s answer in the coming month, it will either set up a more bullish corrective pullback into year end, or a much deeper pullback, especially in the miner’s complex.

I want to repost my analysis from last week, as it is still quite applicable:

As I explained in greater detail last weekend, if the GDX is able to make a higher high in the 26 region in the coming weeks, then it leaves the door open that green wave (2) may not break below the July lows.  However, if the market is unable to develop a higher high over that struck in September, and then breaks below the low made before the current rally began, it opens the door to the GDX dropping down towards the 17 region before year end to complete a much more protracted wave ii, as presented in yellow on the daily GDX chart.

My preference still remains that GDX, silver and GLD all make a higher high in the coming weeks, which would put a more bullish stance upon the complex (even though another drop will likely take us into the end of the years), I really have nothing to which I can point that would suggest this will occur within a high degree of probability. 

So, as I have noted several times over the last few weeks, I have turned extremely cautious of the complex, at least until it proves itself with a higher high being struck in the coming weeks.   Until such time, I am going to be more protective of my positions.

And for those who are still viewing this market from an extremely bullish perspective, I will be honest with you and tell you that I do not see any high probability set-up which would suggest the market is going to imminently break out in the heart of a 3^rd wave just yet.   I explained why in more detail in last weekend’s update, and would estimate the probability of that occurring from this current region at less than 20%. 

For this reason, I think that one can maintain a certain amount of patience (as if 2017 has not forced you to be patient enough), as even if we see a rally to a higher high, it will likely be followed by another pullback (as a wave (2) in GDX and a c-wave in GLD and silver) before we are finally ready to break out over the 2016 market highs.

Ultimately, this leads me to the conclusion that the 2016 market highs will not likely be broken until 2018, and this will remain as my primary expectation whether the GDX sees a larger break down or not.  But, until we see how the next rally takes shape, we will not be able to ascertain with more certainty whether a bigger decline is in the cards into the end of the year, or if we will simply remain in the same consolidation region until then.  

The main initial resistance for the GDX resides in the 24.50-25 region.  And, again, if the GDX can push past this resistance and move up to a higher high in the coming month, then we can take the more immediate bullish count more seriously.  Even so, it too suggests that a rather deep pullback can take shape into the end of the year in a wave (2).  However, if we are not able to push to a higher high, and then break down impulsively below the recent lows in the 22.70 region, it opens a trap door for the GDX to drop down towards the 17 region into the year end.

This means we are now in a very uncertain and precarious region in the metals complex.  And, since, even in the bullish case scenario, the market will likely pullback to the current region or even a bit lower, one will not likely miss much of the long-term upside if a perspective of patience were to be maintained at this time.

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

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.