First published Sun Jan 1 for members of ElliottWaveTrader.net: Last weekend (Christmas weekend), I noted that set ups such as we have been seeing in the GDX usually lead to strong rallies which can see a 10% move higher quite quickly. Since then, the GDX ran 19% from its recent lows, with Thursday (Dec 29) alone seeing a 7.5% rise. Yes, these divergent set ups can provide for powerful reversal reactions. But, it does not mean we are out of the woods just yet.
In fact, silver still is quite weak, and gold has not yet convinced me either. Moreover, one does not have to make this very complicated at this point in time when one views the daily chart on the GDX. As many of you, as well as the rest of the market, have been seeing the downtrend channel we have developed in the GDX, we cannot gain escape velocity until we are able to clear that 22.50 region.
Now, I can certainly provide you with a bullish interpretation of the rally in the GDX, as I have presented in on the attached 8 minute chart. While 3rd waves in equities are usually the strongest waves, we often see the 5th waves in the metals complex represent the strongest moves, with the top of the 5th wave experiencing a strong reversal. So, that certainly fits with this interpretation I have placed on the 8 minute chart. Moreover, the wave 3 of iii struck the 1.236 extension with wave 4 of iii holding support at the .764 extension, with wave iii culminating at the 1.764 extension, and wave v spiking through the 3.618 extension. Again, it is a very nice Fibonacci Pinball structure. However, it is not one I am going to maintain with strong conviction until we break out of the downtrend channel with authority. And, this is just plain and simple technical analysis.
Since we broke out of our GDX micro resistance box (which is still on the 8-minute chart), it now becomes important support for this count. However, if we break below this box, which bottoms out at the .764 retracement of the prior rally at the 19.40 region, that would be a bearish indication, and the market will likely minimally target the prior bottom in the 18.60 region, and, if broken, will likely target the 17 region. So, again, this blue box, which was prior resistance but now represents support, is truly very important to any immediate bullish thesis one wants to maintain. Again, I want to reiterate that if the blue support box is broken, it opens the door to a test of the 17 region in the GDX.
As far as silver is concerned, I still have no highly confident way to count a bottom as having been struck just yet. And, as long as we remain below 16.50, pressure is going to remain down, as we have presented the last few weeks. But, I am expecting the positive divergences we have on the daily and 144-minute charts to be maintained even if we test the 15 region. Again, most of the evidence points to this completing the final squiggles in this last 5th wave down in the c-wave of ii, but it certainly has taken its sweet time to do so.
With regard to gold, this past week’s rally was clearly very important to the larger degree structure. And, it reinforces my perspective that we can still hold over the lows seen last year in this wave ii retracement. You see, the technicals on the daily chart have now risen to the point that if we do see another drop in gold, it will likely provide us with the positive divergent bottom we want to see develop on this chart. So, unless the market completely falls apart in the next drop – if we even see another drop – then I still think we will hold the more bullish i-ii count off the 2016 lows, and set us up for a wave iii to begin in 2017, similar to the deep pullback seen in 2001.
Again, while I can always be wrong in my assessments, and I know that many disagree with my perspective (and you may wind up being right) that the lows for the complex have been struck, I still have to provide you with what the charts are telling me based upon the complex taken as a whole. So, as we go into 2017, I still maintain a bullish perspective for the metals complex, but clearly need to have better “proof” beyond this rally we experienced this past week for which the technicals provided advance warning.
See charts illustrating the wave counts on the GLD, GDX and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-201701011461.html .
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.