Forced To Adjust Over The Last Week
By
Avi Gilburt
I want to start this metals update with another reminder about the manner in which I approach my metals analysis. With the significant experience I have in trading and investing in the metals complex for decades now, I have learned a lot about how metals run. And, this has fashioned the manner in which I approach this market.
So, as I have explained many times before, if there is a reasonable bullish wave count interpretation for a metals chart that I track, I will usually apply that count as my primary, at least until the market proves otherwise. The main reason is that experience has taught me that if you miss a metals move to the upside without having your position in place, then you will usually be locked out as it does not always give you another opportunity. The gold chart over the last year or more is a very good example of that premise.
However, if the market breaks a support and provides you with a deeper pullback, it just means you have another opportunity before you to add to your positions. But, the only proviso is that one should not be using VERY aggressive positions until you have a 1-2 set up for the next move in the complex. This is the set up for which I have been warning you to wait before we get aggressive again on the long side.
But, with the market pushing deeper now in this pullback it causes us to adjust our perspective a bit.
As I also explained earlier, I have having issues with the smaller degree wave count in GDX over these last several weeks. But, with this deeper pullback, I think it settles my view a bit more, and has me adjust my expectation to maintaining within the lower trend channel going forward. That now means that this pullback is likely wave [4] of 3, as it is now outlined on the daily chart.
As you can see, we are now approaching the pivot from the daily chart, and that is a reasonable support region for this wave [4]. Moreover, the MACD is again dropping down to its support region too. So, going forward, I am no longer expecting a move up into the accelerated trend channel, but still have a target of 49-52 for the next rally.
In GLD, it would seem that wave [iii] may have topped a bit earlier than I had initially expected. So, if the next rally is clearly corrective, that would likely solidify the count for me, and move me into the wave [iv] wave count. This means that we may remain within a consolidation during the month of November, and begin wave [v] as we move into the end of the year. I also think this wave count would align the GLD structure with the GDX structure.
This now brings me to silver. And, as you have already read, if there is a reasonable bullish path for silver, I am going to present it as my primary. Again, if you are not prepared for the types of moves we often see in silver, then you will likely be left behind for what I expect to be a MAJOR move. The type of move I am still expecting is like the parabolic one seen in 2010.
Now, I want to touch on something that Bob Prechter said during our chat the other day. Silver normally has a 20:1 ratio with gold, based upon most people’s understanding. However, as it stands right now, silver’s relationship with the gold price is actually at 85:1. That means that silver is EXCEPTIONALLY undervalued from a historical perspective. And, as Bob noted, it’s usually as we approach the end of the gold run that silver sees a massive catch up move, similar to what we saw in 2010. As we stand today, we are clearly coming towards the end of the gold run, as gold only needs two more 5th wave rallies before gold completes its long term rally which began in early 2016. That means we should be expecting a massive silver move. And, again, should I see a reasonable bullish set up in silver, I am ALWAYS going to present it for this reason.
As it stands right now, I can still maintain the wave [4] pullback count in silver. However, as I said before, I would not be taking a short-term aggressive trade until the next i-ii structure presents itself. So, we are going to need a bit more patience until the next short-term trade develops. In the meantime, if we head a bit lower, or if the next rally is clearly corrective, then I am going to have to move into the yellow count presented on the chart. Interestingly, this count would match the gold potential for a consolidation during the month of November. Also, this would suggest a heart of 3rd wave would still be setting up and it would project even higher than I have been seeing thus far.
However, with that being said, I would not be shocked by silver’s outperformance while gold sees a b-wave rally. So, for now, I am going to give the wave [4] just a bit more room, but not by much.
Therefore, I want to see how the next “bounce” in the complex takes shape. Should it be impulsive, especially in silver, then I am going to be looking up towards the 37-41 region again. However, if the bounce is clearly corrective, then we will likely remain in this consolidation for the coming weeks and look towards the end of the month before we begin the next major rally phase.
