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It's Time To Get Serious about the Metals Complex

12/22/2017 10:56 am EST

Focus: COMMODITIES

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

Now is the time to deploy your capital again as long as your time horizon is longer than the next few months, as 2018 looks to be setting up as a very strong year for the metals complex, writes Avi Gilburt, technical analyst and author of ElliottWaveTrader.net.

The metals have been exhibiting like an actor in a soap opera. They have taken us to the edge of our emotions on each and every swing, as they take us to the edge of each of our support and resistance regions, and then turn. 

I think many of you have lost the focus of the forest due to your concentration on the leaves. So, this week, I am going to open with our discussion of the leaves, and then focus on the forest. It’s time to get serious about this complex.

Ultimately, my point will be that anyone who is serious about this complex should look upon this market today as we did back towards the end of 2015. Look for buying opportunities while keeping in mind the potential for that dreaded one more lower low. 

And, sometimes, the market surprises us and does not provide us with the lower low, and simply takes off. Either way, it’s time to prepare.

For the last several weeks, those who have reviewed my charts would have seen the clearly marked blue box support on my 8-minute GDX between 20.89-21.26. Moreover, we have been noting that should this support hold, we can see a strong rally off this region, and it can mark the long-term bottom in this complex. Last week, the market touched a low of 21.27, and began what seemed to be a strong rally.

(While I have been doing this for many years, I can honestly say I am still amazed at the accuracy of the turning points that Elliott Wave, coupled with our Fibonacci Pinball method, is able to provide us time and again, as we bottomed within one penny of our noted important support level, and then rallied to within pennies of our noted resistance.)

However, our analysis last weekend also noted that as long as 22.30 is respected as resistance, we have no initial indications of a longer-term bottom being in place. Moreover, the rally through 22.30 should have taken shape as an impulsive structure, and, to be honest, the rally off last week’s lows counts best as a 3-wave rally in SPDR Gold Trust (GLD), silver and the VanEck Vectors Gold Miners ETF (GDX).

Stefanie Kammerman, the Stock Whisperer, spots big prints from the Dark Pool in GLD.

So, yes, this action is still signaling strong potential for the dreaded one more lower low yet to be seen. But, with the manner in which the market reacted last week, caused me to modify my more “bearish” count in GDX to be looking for not two more lower lows, but, now, only one. 

As you can see, my primary count now views the rally we experienced last week as an a-wave of wave 4 of an ending diagonal c-wave.  That means we can see another rally to take us to at least 22.85 (a=c), with the potential of taking us as high as the 23.50 region (c=1.618*a) for wave 4. 

The scenario I have been outlining the last few months of two lower lows pointing down to the 17-19 region is still “technically” on my radar as long as we remain below 22.30. But, I think the current micro set up is pointing to the GDX imminently breaking out over that level to invalidate that potential. 

So, consider that if we break 21.27 before we are able to break out over 22.35, it keeps that potential pattern alive. For now, I have taken it off my GDX daily chart as one of the top two potentials from a probabilistic sense, and it will only come back should we break down below 21.27.


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Now, I am quite certain many of you are reading this and asking yourself “but can’t we simply break out from here?” 

And, the answer is that it is possible.  

Since I do not have clear 5 wave structures off the recent lows (especially not in silver), we can view it as a 1-2, i-ii off the recent lows, which would portend a very strong rally about to be seen in the complex. 

And, since the pullback off last week’s highs looks more corrective, I am going to look higher as long as we do not approach last week’s lows. In fact, I am starting to get the same sense of FOMO (Fear Of Missing Out) that I was feeling back towards the end of 2015 when I was strongly suggesting people be buying for the longer term.

So, this brings me to the discussion of the forest.It is really easy to get caught up in the micro-counts on these charts. 

It is also really easy to feel dejected or indifferent to this market due to this year and a half long pullback/consolidation we have been experiencing. So, it is time to remember that we are tracking a 2nd wave pullback off what we believe to be the very long-term lows struck in this complex.

 As A.J. Frost and Robert Prechter noted, “[s]econd waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends. . . At this point, investors are thoroughly convinced that the bear market is back to stay.”

Now, I think we have all read how a sizeable segment in the market is convinced that we are likely heading much, much lower in this complex. So, it does seem as though the character of a 2nd wave is exhibiting itself quite well during this decline we have been experiencing, especially since we broke the upper support back in September of 2017. 

Therefore, for those investors who have a time horizon of longer than a few months, I suggest you look at the daily GDX and Barrick Gold (ABX) charts. 

As you can see, my primary expectation is that we can surely see one more lower low in the complex, assuming the ideal pattern plays out in the coming months. 

However, as those who have experience in this complex know, sometimes the market does not provide us with that ideal lower low. 

We certainly have the minimum number of waves in place to support a complete 2nd wave structure. 

But, as I noted in late 2015, now is the time to be looking to deploy your capital, again, as long as your time horizon is longer than the next few months, as 2018 looks to be setting up as a very strong year for the metals complex.

 

See charts illustrating the wave counts on the Silver, GDX, GLD & ABX.

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