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Time to Build the Launching Pad. Metals, Equities Rally in Lockstep

01/19/2018 9:19 am EST

Focus: COMMODITIES

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

In 2017, the word “disappointment” took on a new spelling – “G-D-X.”  After several failed break-out attempts in 2017, there is no question that it provided us a year of frustration, writes Avi Gilburt, technical analyst and author of ElliottWaveTrader.net.

As of Jan.12, the metals have now give us another indication that a break out attempt may be setting up yet again.  And, just like the others we tracked last year, I am unable to tell you definitively whether the market will trigger that set up. 

However, after making higher highs off the December support a week ago, the metals have almost completed a 5-wave structure off those lows. That is the initial bullish indication for which we have been waiting in 2018.

This means we have now almost completed 5 waves up off the support we had been tracking into the December lows, wherein both silver and VanEck Vectors Gold Miners ETF (GDX) bottomed within pennies of the support upon which we had been hyper-focused at the time, whereas SPDR Gold Trust (GLD) came up a bit short of its targeted support. So, wave (1) off those lows will likely complete soon..

If the market is as bullish as we believe it may be for 2018, we should be preparing for a 2nd wave corrective retracement, which can take us into February. And, as long as the pullback is corrective and maintains support, that is the launching pad from which we can ignite the parabolic 3rd wave rally for which we have been more than patiently awaiting.

I have been getting a number of questions from newer members and those new to Elliott Wave analysis enquiring as to what we can expect in a 2nd wave pullback. 

The standard expectation for a 2nd wave is a 3-wave corrective pullback structure, which usually targets the .618 retracement of the first wave.  The a-wave of that 3-wave structure usually targets the .382 retracement of the first 5 wave rally structure, with the c-wave then targeting the 618 retracement.

However, I want to note that when the metals really turn extremely bullish, they rarely see deep pullbacks, as most are quite shallow. In fact, it would not shock me to see a 2nd wave hold support at the .382 retracement. 

But, since we have not yet likely completed the first 5 wave structure for the 1st wave off the December lows yet, I am unable to provide solid target numbers for the .382-.618 retracement region. 

Yet, I have provided an estimated blue box target on the 8-minute GDX and GLD charts here. And, once we have confirmation that all 5 waves have completed, and the 2nd wave has begun, we can start setting more accurate targets for the 2nd wave retracement.

I now want you to take a peek at the daily chart on the GDX, as it is presenting an almost picture perfect technical picture. We broke out from a downtrend channel created in the drop off the September 2017 high and came back to test that break out in the 4th wave, which we recently completed. My expectation is that we may see one more test of the top of the channel in wave (2) before the market can break out.


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I also want to note that if we see a direct move through the 25.25 region in the GDX, that would suggest that we may have already begun the 3rd wave rally we have been expecting. 

Again, this is not my expectation at this time, as I still believe we will see an appropriate 2nd wave pullback. But, when you look at how ready the GLD chart is to simply explode higher, you need to at least be aware of this potential, especially with the market now providing us with 5 waves up off the December lows. 

Yet, since the market has been acting in a rather textbook manner for this 5 wave structure off the December lows, I am expecting it to continue to act in a textbook fashion, and begin a 2nd wave pullback in the coming week or two.

Again, we have been in this posture several times in 2017. So, while I have turned more bullish on these charts now that we have completed 5 waves up off the December 2017 lows, I want to remind you what our break-out trigger will be. After completing 5 waves up for this first wave, we still need to see a corrective 3 wave pullback which holds noted support. 

After the 2nd wave completes, we need to see an impulsive break out over the top of this 5 wave structure off the December 2017 lows, and that will signal that a potentially parabolic rally in the metals has likely begun. Once that occurs, I will note the support levels at which to place your stops, and then tell you to simply stand back and let the market run.

So, for now, we still must have a little more patience, and not to get too emotional when you begin to see red in the metals complex in the coming weeks. It could be the last time you see any significant “red” in this complex for months to come.

And, lastly, I want to add a note which I point out quite often. 

There is something else you should have learned from the recent metals action.  The next time someone tells you that the metals are up because the market is down, simply put them on permanent ignore, because they know nothing about metals. 

As we have seen since December, both the metals and the equity market have rallied quite nicely in lockstep.

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

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