The Dreaded “Lower Low”

With the market seeming quite bifurcated once again, it leaves us with some questions as to when the next rally will take hold in earnest.  Whereas GLD has been extremely stingy in its current pullback thus far, silver has played out almost to perfection.  And, then we have the GDX right in the middle of the two. 

So, let’s deal with the ideal structure first.  As you can see from the silver chart, the market topped in wave [1] of [iii] right at the bottom of the target box we set even before the prior correction completed.  Moreover, we have almost completed an [a][b][c] pullback since that time, with the market dropping in impulsive fashion once it struck the bottom of our [b] wave target. 

For those that have followed my analysis for some time, you would know that the silver 144-minute chart has been one of the best indications for bottoming in the complex that we have seen in all the years we have been analyzing metals.  Most specifically, when the market provides us with a positive divergence at the completion of a c-wave decline, it provides us with a strong indication that we are about to turn up strongly. 

At this point in time, the micro count suggests that we have bottomed in a wave iii of the [c] wave in silver, and likely working on wave [iv].  As long as we do not see an impulsive continuation through 17.95, then I am expecting that dreaded lower low to complete the [c] wave.  Moreover, with the MACD starting to turn up this afternoon, we have to be on high alert for a bottoming signal just around the corner.  But, we don’t have it just yet.

And, while many of you may be thinking I am too much of a perfectionist, well, I have to follow what has worked better than anything else I have seen in the metals complex for many, many years. 

That now brings me to GDX.  Ideally, the minimum target I wanted to see on this GDX pullback was the 27.60 region, which is the .618 retracement, wherein it crosses with the [a]=[c] target for this corrective pullback.  And, until I see an impulsive structure off the recent low suggesting we are about to break out in earnest, I must maintain my prior expectation.  For now, I don’t have anything that suggests otherwise.  But, should we move strongly through 29.20, I would have to reconsider.

This now brings me to GLD.  This has not even come close to fulfilling its pullback target.  While it would be unusual to see an outsized move down in GLD while silver makes its nominally lower low, it would not surprise me to see it.  But, if the bigger pattern is pulling on GLD to the upside and we are able to break out through the recent high, then I will have to consider that we have begun a rally to the 170 region next in the larger degree structure.  Of course, if we are able to begin a clear 5-wave structure off this last low into the 150-152 region, then that will put me on high alert for a break out scenario.

Ultimately, we are likely getting very close to the potential break out we have been looking towards for quite some time.  And, since there are clearly alternatives we may have to consider on the next rally, once silver bottoms, I will begin to place before all of you the parameters to track so that we can discern whether we are about to enter a heart of a 3^rd wave in the metals complex, or if something else is potentially playing out, as I have outlined many times before.

For now, I am going to patiently wait for silver to complete this structure, and will likely be taking my cues off that chart in the near term, as it has served us so well for many years. And, lastly, as I heighted in the trading room yesterday, once we begin the next rally, my minimum target is in the 21.790 region, which is the BEARISH case scenario, whereas the bullish case scenario should blow through that region, on the way to the 23-23.75 region for wave [3] of [iii].

But, make no mistake about it . .. once we get the confirmed bottom in place on silver, it is time to turn very bullish, as this is a very bullish set up.  Until then, I am going to still maintain some patience and maintain my current positioning.