We will likely see one more decline in silver before this entire two-plus-year consolidation has completed, says Avi Gilburt of ElliottWaveTrader.net.
As I have said time and again, the metals extend to well beyond standard Fibonacci extensions on both the upside and downside. At this time, the metals have pushed us quite far to the downside, especially silver. In fact, according to Elliott Wave analysis, the mini silver futures contract is now dangerously close to invalidating this count as a wave (4), which would then have me viewing this pullback from the prior highs as either a wave 2 of larger degree, or simply an a-wave of a wave 2 of larger degree. In either case, the market is likely headed to 35+, (most likely in 2014) and how it will do so will let us know if the market is heading to 80+ (yes, you heard that right), or dropping down to the low teens to complete the larger degree wave 2, before heading to 80+. But, remember that the low teens will be possible only if the wave (4) becomes invalidated, and, by all counts, it would need to break down below 16.40 to see the wave 2 count adopted. But, if a wave 2 count is adopted, this has potential targets for silver extending beyond 100.
Last Wednesday, I mentioned that I was cashing in all my hedges, and going un-hedged on my silver positions for the first time in quite some time. The count has looked quite full to the downside into the lows we saw on Wednesday and Thursday, and it set up the strong reversal we got on Friday. In fact, I noted how strong the positive divergences in the technical were setting up for a strong move to the upside.
However, we are not out of the woods yet on this wave 3 on our chart, at least not until the market can move through the 22.15 region, which is still $2 higher. So, once we get a bit higher, I may be putting some hedges back on, and will stop out of those with a strong move over 22.15.
If we do manage to move over 22.15, then I am looking at the 24.50 region as a minimum target, with the potential to extend as high as the 27 region for a larger degree wave 4. So, based upon this count, I am still expecting one more drop in the metals—most likely towards the end of the summer—before we see a completed larger degree pattern, which will set up a much more sizeable rally, and potentially the larger rally we have all been expecting.
As for the SPDR Gold Shares (GLD), the relevant immediate resistance region is between the 121-124.50 region, and assuming we can move through there, then we can potentially be heading to the 135 region, to potentially as high as the 143 region for the wave 4.
See charts illustrating wave counts on silver and gold below.
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So, again, my primary perspective is that we will likely see one more decline in silver in the larger wave degree before this entire 2+ year consolidation has completed. Whether a new low will be made is still a question I am unable to answer at this time.
By Avi Gilburt, Founder, ElliottWaveTrader.net
