Rally In Metals To Come?

After catching the rally into the high we struck last week, I then provided a strong warning to those willing to listen exactly one week ago:

“As it stands right now,  both gold and silver are completing a potential a-b-c corrective rally, which if correct, would resolve with a 5-wave decline for wave 1 of their respective c-waves lower.   So, those that do not want to experience another draw down would want to lighten their load at this point.  However, those, like me, who have retained their positioning during this entire rally, can choose to add some cheap protection instead.”

Based upon some of your comments, some of you did not heed my warning.  Yet, based upon the relatively low level of bit-hing in the trading room, it would seem that the great majority of you paid heed to my warning.

But, with this decline now going a bit deeper than I wanted to see at this degree, I am still assuming this is just part of an ongoing corrective structure in the complex.  And, the GLD chart provides us with an interesting perspective on this potential.

I think this is a good time to again remind you that b-waves are usually the most difficult waves within the Elliott Wave construct, and this one has been no different. While we have been able to catch most of the turns during this one, it has not made it any easier.

So, let’s look at the potential further machinations we may still see as presented in the GLD chart. I am presenting this decline as a [c] wave at this time.  The question is now is if this is a [c] wave of the more bullish b-wave in green, or if it is presenting us with a more complex wave [iv].  The problem is that a rally in either case would be impulsive as the green would be wave 1 and the red would be a [c] wave.  It would only be distinguishable by the pullback thereafter.

Now, of course, GLD can continue to drop lower towards the 230 region in furtherance of a more direct c-wave of wave [iv] in red, but I see that as the lesser likely scenario at this time.  Yet, I again want to remain you that this is all corrective action, so remember that I cannot rule that out at this time.

GDX has completed invalidated any immediate bullish potential, but it also does not necessarily suggest that we continue lower to complete a deeper wave [4].   I would say the potential for a more direct drop to complete a deeper wave [4] and the more prolonged one presented in purple are about 50/50 at this time in my perspective.  But, please take note of the daily positive divergence on the MACD, which is a strong indication that a bottoming of some kind is taking shape down here.

Silver is still a challenge at the smaller degree.  I would love to see a continued decline to suggest we are either completing a more extended 3^rd wave of the c-wave, or we are now completing a 5^th wave of that c-wave.  Therefore, I believe we have dropped too far for this to be a 1-2 downside set up as the consolidation we saw was more akin to a 4^th wave than a 2^nd wave.  Thus, I have moved up our support box for this decline.  Also, take note of the positive divergence set up on the 144-minute MACD, which is strongly suggestive of a bottoming structure.

So, in the coming day or two I will be on the lookout for a 5 wave rally to suggest this corrective is going to potentially take a more convoluted path.   However, if we do not see that type of rally in the coming days, then it would seem we have the potential to rip this band-aid off sooner rather than later, with the market taking a more direct route to that final low in this correction.

A few days ago, I noted I was selling some of my protective puts that I bought last week at the highs.  Today, I sold half of what I had left.  But, I am more heavily weighted towards my protective silver puts than my GLD puts at this time.