Can We Maintain the Strength in the Metals Complex?

01/05/2018 1:08 pm EST

Focus: COMMODITIES

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

I am expecting a 3rd wave to commence in 2018, and some outsized gains in this complex for investors who have not been scared out of this market from frustrations of a  2017 retracement, writes Avi Gilburt, technical analyst and author of ElliottWaveTrader.net.

While I am unable to answer the question in the title of this update definitively, I will show you what the market has to do in order to answer the question in the affirmative. 

But, first I want to reflect on 2017.  We approached 2017 with high expectations that the market would provide us with a strong 3rd wave break out off the 2015 lows.  In fact, we caught the lows at the end of 2016, and the market rallied in what seemed to be a 5 wave structure off the December 2016 lows.  That put us on high alert that we have a potential i-ii, 1-2 setting up off the 2015 lows. 

That meant that we began to track a wave 2 pullback, which would set us up for the heart of the 3rd wave break out.  The market gave us three different opportunities during 2017 for that break out to occur, as we caught the pullback lows in March, May and again in July.  However, each rally off those lows invalidated the potential break out set-ups we tracked, which caused 2017 to be quite frustrating.  While the market never broke any of our lower supports we caught through the year, the inability to hold upper support and provide us the 3rd wave break out we have been eagerly awaiting certainly caused a lot of frustration.

And, while the market has, again, rallied strongly off the support we had been highlighting several weeks ago, we are again seeking confirmation that we are setting up on the launching pad for early 2018.

While silver and SPDR Gold Trust (GLD) have clearly broken through their resistance levels, they still have not yet completed 5 waves up off their recent lows. Rather, we will still need to see 4th wave consolidations, followed by 5th waves higher to place the market back on the launch pad. We will still need to see a 2nd wave pullback after all 5 waves complete off the recent lows, seeing 5 waves off the recent lows is a very good sign for the bulls.

As you can see from the smaller time frame charts on silver and GLD, I have marked support regions for their respect 4th waves as 16.60-16.75 in silver, and 121-122.30 in GLD.  As long as the next pullback is corrective and maintains these support levels, the market can set up to complete 5 waves off the recent lows.  Clearly, a break of these supports will place the metals market in question, and potentially point below the lows we struck a few weeks ago.

As far as GDX is concerned, we have been focused on the 23.30 region, which had to be broken strongly, to begin confirmation that the low is in place for the VanEck Vectors Gold Miners ETF (GDX).  Yet, the market rallied right up to that region, and while it did spike several cents over that level, we have not really seen a sustained break of that resistance just yet.  And, yes, this still leaves the potential that this rally may only be a 4th wave.


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So, I have identified smaller time frame support for GDX between 22.60-22.85 which must be held in order to complete 5 waves up off the recent lows. Moreover, I really don’t even consider all of wave iii off the recent lows as completed, as the more bullish count would have us only completing the 3rd wave of wave iii, leaving us expecting a 5th wave higher just to complete wave iii in the more bullish count. However, any break down below support before we can complete all 5 waves in the coming week or two can certainly suggest that a wave 4 has topped and a lower low is being targeted.

In fact, the Barrick Gold (ABX) can still support a lower low as long as we remain within resistance.  While we do have 5 waves up off the recent lows in ABX, it certainly can lend itself to a clean count with the lower low being a b-wave in wave iv. In fact, the 5 waves off the recent lows did not really exceed the 2.00 extension for the 5 wave structure off the recent lows in ABX, which is usually not suggestive of bullish action in a miners chart, since bullish action in miners often see massive extensions to 2.618 levels and beyond. 

Moreover, we have stopped right at the .382 retracement of wave iii, which is the standard target for a 4th wave.  These are signs of weakness in the ABX, at least in my humble opinion, and should keep us maintaining a healthy respect for a potential lower low in the coming weeks.

However, if all we now see is a corrective decline in the ABX, followed by a strong break out over 14.68, I will not likely be looking lower for one more lower low as my primary expectation.  Rather, I would be looking for the ABX to rally towards the wave 1 blue box overhead. 

I also want to note that not all the charts we follow have to align in the same way. Remember, silver topped almost half a year before gold did so back in 2011.  Sometimes, the counts in the various charts in the metals complex may not align perfectly, which is why we analyze each chart on its own, and will continue to do so.

So, while we are still trying to feel out if various segments of this complex can still see one more lower low in 2018, I want to reiterate my expectation for a bottom in the coming months in this complex, if one has not already been struck.  Therefore, anyone with a perspective that goes beyond the next few months should be looking for opportunities to layer into this market, especially in the individual miners, which have quite a few that are suggestive of having completed their respective 2nd waves. 

In the meantime, we will continue to track the GDX, silver and GLD to either completion of 5 waves off the recent lows, or a break down which can suggest further weakness and potential lower lows in early 2018.  But, either way, I am expecting the heart of a 3rd wave to commence in 2018, and provide some outsized gains in this complex for investors who have not been scared out of this market due to the frustrations that a  2nd wave retracement experienced in 2017.

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

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