I am doing the mid-week metals update a day early due to the action we have seen today in the complex. If I should need a further update later this week, I will not hesitate to write another one, so as to keep you abreast of my view should something change from the update below.
Oftentimes, you need to have patience when it comes to the metals. You see, while they move very quickly when they do move, the rest of the time they simply consolidate until they are ready for their next big move.
We have been waiting to see if the market is going to provide us that deeper pullback we wanted to see, and today seems to have triggered that potential. But, not all charts are showing the same degree of weakness.
First, I want to highlight the GDXJ. At this point in time, I am starting to lean to the potential that we saw a leading diagonal off the mid-October low, with this pullback being a wave ii. Alternatively, I will consider the yellow count, but I am just not seeing the follow through for that potential at this time. Ultimately, the next time we rally over what I have now counted as wave i, I think that will be a very bullish trigger. But, please take note of the very overlapping decline in the GDX since the highs, and compare that to the very impulsive rally on the left side of the chart. This is ordinarily a very bullish set up.
Second, while I am not going into the specifics of the various individual miners we have been tracking on the weekend, they have finally provided us with the last leg down we had wanted to see for a more appropriate retracement. While RGLD has dropped a bit lower than I had initially expected, it is still quite corrective in structure. So, while there still may be a bit more weakness seen in the coming week in the complex, this is still quite a corrective looking pullback, and likely setting us up for the next major rally phase.
Silver is a bit of an issue to me right now. I have no indications that it has a 5-wave structure off the early October low. And, while this pullback can be a 4th wave in a bigger wave (1) of a leading diagonal, I cannot say that I am terribly comfortable with that count. The more likely count seems to suggest a bigger c-wave as presented now in green. And, as long as we remain below the 18 region, I am going to maintain that as my primary expectation. But, again, that simply suggests we will be completing this a-b-c structure in larger degree, and it will likely set us up for the next major rally phase. But, if the market finds a bottom sooner rather than later, then I will expect it to provide us with a 5th wave to wave (1), as outlined in yellow.
GLD seems to be the clearest micro structure I am tracking at this time. As I noted last week, the market is setting up for a potential deeper pullback, and today’s drop has certainly increased that potential. As it stands now, the most likely count seems to be today’s bottom counting as wave iii of 3, with the consolidation being wave iv of 3.
But, I also have to note that it is VERY rare for wave iii of 3 to only strike the 1.00 extension of waves 1 and 2. While that is a standard target within our Fibonacci Pinball structure, it is rare that we see it as the target for iii of 3 within the metals complex, which normally sees strong extensions.
Yet, it really seems to be the best count I can see at this time, so I am maintaining it as my primary for as long as we remain below 141. Should we see an impulsive rally through 141, then I will consider something more immediately bullish, as presented by the blue count.
Lastly, as far as the GDX, to be honest, it can count similarly to the GDXJ, or it can make a lower low in its wave ii. Since the rally off the last lows is overlapping, it is hard to rely upon a leading diagonal. And, since we are so close to that last low, I can easily see a bit more weakness providing a deeper drop towards our target for wave ii.
Now, if you have not figured out that this is an opportunity for those that are looking to add to their positions in the metals complex, then allow me to state so quite clearly. You see the support boxes on our charts, and a deeper pullback should be viewed by investors as a buying opportunity, and placing your stops below the support boxes. However, as I said many times before, I do not see the opportunity to get “aggressive” on the long side (options/leverage) until we either see a better 1-2 structure off a bottom, or a break out over last week’s highs.
For now, I will be tracking the micro count, most specifically on GLD, and will continue to update you as it progresses. And, should we see a break out over 141 rather than follow through on the fuller downside structure presented, it may make me switch gears rather quickly. Stay on your toes.