Silver Is A Game Changer

I know that many of you may be surprised to see a metal’s update every day this week, but when we have major shifts in the market, it is certainly warranted.

This past weekend, I outlined that we would be coming up to the levels we now find ourselves within the GLD and GDX.  However, I was unsure if we would strike a top in this region which would trigger a bigger pullback – outlined in yellow over the weekend – or a more shallow pullback, which has been my primary analysis.

However, the silver break out is now a game changer, which makes me view any deeper pullback as significantly less likely. 

As I have noted several times this past week, the one regret that I have about the current situation is that both the GDX and the silver structures off the June lows were very overlapping and did not exhibit standard impulsive properties.  This did not allow me to be able to identify a higher probability and lower risk entry for leveraged long positions.  Unfortunately, the market does not always provide those entries.

However, before the market opened on Monday morning, silver was showing me signs that it could potentially break out sooner rather than later.  So, I sent out the following update to all our members:

“Even though I am struggling with the micro move up off the June low in silver due to the overlap, I am trying to glean the micro count from other factors. 

So, as I noted earlier, the 19.35 level is now micro support, and as long as we hold that level, we can break out of our pivot region.  Should silver continue higher, it likely will spike up and my next IDEAL target is the 22.16 region for the standard Fibonacci Pinball structure presented in the grey (iii) of green iii of (3), which is the 1.236 extension of waves i and ii in green, within wave (3).

However, as noted earlier, silver often likes to surprise to the upside.  So I have an alternative in yellow on the chart ONLY IF we are able to break out here and then take out the 22.16 region.  

So, parameters right now are 19.35 micro support, with the pivot top in the 20.25 region, followed by the 1.00 extension of waves i-ii in green at 21.20, and then the more ideal target for a break out in the 22.16 region.”

As I have been noting the rally into our lower market pivot was very overlapping and did not provide a clear structure for waves [i] and [ii] of wave iii of [3] to allow us to add leveraged long positions in a lower risk manner.  But, it show us signs of the potential break out before it happened.

And, now that silver has broken out, it is rather clear to me that we are in the midst of a 3rd wave, with the MACD on the silver 144-minute chart supporting that wave count.   Price support now resides at our former resistance in the 21.20 region, and as long as all pullbacks from this point forth hold that support, then I think we can see the 27 region later this year, which is the wave v of [3] target on my 144-minute chart.

So, this now leaves us questioning how GLD continues onto its next target region in the 200 region, and how GDX continues on to 50+.

Starting with GLD, my preference remains that we are topping out in wave 5 of i of wave [5] of 3 – yes, I know that is a mouthful.  But, ultimately, wave 3 should be taking us over 200 in the GLD. I can maintain this wave count as long as the GLD remains below the 178.50 resistance.  And, as you can see from the attached, we seem to completing 5 waves up off the June lows, which suggests we should see a wave ii pullback.  And due to the pattern in silver, I am guestimating that the pullback in GLD will not likely be terribly deep, as we should hold the 165-69 region for wave ii.

Again, I am still quite bullish of GLD as long as we hold over that blue box support.  However, if we see continued strength through 178.50 and we follow through over the 179 region, then it likely means we are moving toward 200 in a more direct fashion, and 174 will become upper support on a break out over 179.  This is not my expectation at this time, but it is something I have to at least be prepared for in the event the market turns more bullish than I had initially expected.

Due to the likelihood that the next pullback will be more shallow than I had initially expected, I am buying much smaller hedging positions in GLD for this potential pullback.  In other words, I am much less concerned now for a bigger pullback that I was worried about in the weekend update and am acting accordingly.

So, in GDX, I have to maintain the same perspective as the GLD.  Ideally, I want to see us topping in wave i of [5] of 3.  That means that the 43 region is really the last line of defense for this potential. Should the market move strongly through this resistance, then I have to assume we are moving directly to wave [5] of 3 target. However, the wave i-ii structure will point us to AT LEAST the top of the [5] of 3 target in the 55 region, whereas a direct break out would likely only target the 47.50-50 region. 

So, in summary, silver’s break out early this week really has placed a more bullish near term spin on the metals market, especially as long as it holds over 21.20.  As long as silver holds over that level, then I am expecting a rally towards 27 later this year, if not higher.  But, as you can see, it will not likely be a direct move, as we will likely have a wave iv to be seen before we begin that next move higher.  And, ultimately, it also means that the other charts will likely be pointing higher as well this year, especially for as long as GLD also holds the 165/166 support region.

GDXdaily
GDXdaily
GLD60min
GLD60min
silver144min
silver144min
Avi Gilburt is founder of ElliottWaveTrader.net.