The gold rally has run into a snag, but this is providing traders an opportunity to get into the market near the bottom, notes Avi Gilburt.
The metals market is an extremely emotional one. The highs and lows you see with metals traders are evident at each of the extremes. We are now approaching another extreme.
In June, I notified those willing to listen that gold was preparing to “take off like a rocket-ship.” I outlined my expectations for a strong rally to the 137 region in the SPDR Gold Trust ETF (GLD), followed by a continued move to 143/45 before we see a larger consolidation. Thus far, the market has been reacting as generally expected.
In my last metals article, I noted that the market was not providing any signs that a bottom has been struck. Rather, the rally we experienced in October was overlapping and did not satisfy a 5-wave rally to confirm that a bottom has already been struck.
So, in the last week of October, GLD provided us with a small degree 5-wave decline. That provided us advance warning that the next bout of weakness in the metals complex was setting up. We projected a correction to the 133-135 region and was buying puts on GLD for that potential move.
We are approaching my ideal target region. This is supported by the growing bearish view on metals. I am reading many blogs and articles which are starting to view this as a “fake rally.” Yet, I don’t think the structure of the metals market is supportive of that perspective.
The rally we experienced over the last year has been impulsive, whereas the pullbacks have been corrective looking. This is exactly how a bull market should behave. Therefore, as long as GLD remains over the 130/131 support region (and ideally over 133), my next target is 157 to 161.
But, before I am willing to trade that next rally aggressively, I am going to wait for the market to provide us with a clear 5-wave structure off a low I expect to be struck over the coming week or two. Once that 5-wave structure completes, I will be preparing an aggressive trade posture for the next larger degree rally phase.
In the meantime, I am looking for a local bottom to be struck in our gold price forecast over the coming week or two and followed by a 5-wave rally off that low. That will then put us on warning to prepare for the next major rally phase over the coming months.
Lastly, the next time we see a 5-wave structure rally breaking us up through the 139.50/140 resistance
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.
