Silver & Gold: Finally Got Our Breakout – Time To Turn Down Now?

While my title was written a bit tongue-in-cheek, it is not terribly far from the truth.  As we all know by now, the market triggered the bullish pattern we have been following for weeks.  And, for those that remember the “evil plan” I outlined since we came into 2015, the market is following through quite beautifully.

If you remember, as we came into the year, I was looking for the rally we were in to top out, and take us back down to the lows of 2014.  From there I expected a strong rally to potentially challenge and maybe even exceed the 2015 highs.

Currently, market participants have gotten much more bullish than they were several weeks ago, however, we are still not near the 2015 highs in GLD.  Yet, as we are approaching the 2015 highs in GDX and silver, I am seeing articles by long time uber-bulls, such as Peter Schiff, being prominently displayed throughout the financial media, touting $5000+ gold price expectations.  And, we often see these types of articles as the marketplace becomes more and more bullish.

While those that have read me for quite some time know that my bullish price targets actually well exceed Schiff’s, that does not mean I am expecting that we are heading to those levels from here.  Rather, I believe the executioner is simply sharpening the guillotine for those following Schiff and his ilk.  Yes, I am still quite convinced that lower lows will be seen in the metals and miners.  And, I also believe that it will be so dramatic an event when it does happen later this year that we will see hopelessness abound throughout the metals marketplace.

For now, I am questioning whether this rally is coming to an end.  I can honestly say that we have the minimum number of waves in place to consider that the metals and GDX have completed their counter-trend rally.  To date, I have remained quite bullish in the short term, expecting the break out we witnessed last week to occur.  So, while we have not yet reached the ideal targets I had wanted to see to set us up for the lower lows, I am going to suggest a bit more caution at this point in time. 

In fact, on Friday, I sent out a Wave Alert to members in our Trading Room at Elliottwavetrader.net suggesting that they cut their short-term long positions back, while we were at the highs.  Specifically, my suggestion was to take out the initial investments they made for this rally, and simply allow their profits to run, for now.  Since I am still of the belief that we are in a counter-trend rally, and since we have the minimum number of waves in place to consider this rally as completed, I believe that there is no reason to take any high risk positions from this point forth.  And, while I have no indications that this rally has indeed concluded, and I would rather see higher levels attained, that does not mean one should be placing a high risk “bet” during such a counter-trend rally when one has seen an estimated 10% appreciation off the 2015 lows, even though the market can still see as much as another 10% from here.  Again, I would rather attempt to ride the rest of the upside potential with much less risk.

But, as I noted, as of Friday we have a double top in the GLD and silver, which CAN represent all the waves needed off the recent lows.  However, in the ideal situation, I want to see more bullishness developed in this market.  Therefore, I want to see further extensions take hold to take silver to at least the 17.75 region, and GLD to at least the 120 region.  But, the ideal targets I wanted to see struck are closer to 128 in GLD and the 19-20 region in silver.  However, I am just not convinced that the structure being presented has the ability to attain those higher levels, since we did not see the gap up I had wanted to see on Friday in an extended wave(5) of iii off the last week’s lows.

In the GDX, we have a much more complex pattern which has formed for this corrective rally.  It seems to have developed as an ending diagonal, which CAN be considered completed with the high seen this past week.  While my preference is that the past week’s high is only an a-wave of wave 5 in the ending diagonal, a break down below 19.77 would be my signal that this corrective rally has likely completed.

In conclusion, for now, I am going to continue to look higher, as long as we maintain over support (19.77 GDX, 17.21 silver, and 115.90 GLD).  Should support break before we head higher, the manner in which it breaks should tell us if we are heading to the final lows or not.  But, I will turn much more cautious should we see silver approaching 17.75, GLD approaching 120, and GDX approaching 22.40.

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See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-YI-GDX-20150517716.html 

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.