Weekend Metals Report: Taking Everyone For A Ride

Last week, the market had a break-out set up to follow through within the purple count and a much more evil b-wave structure.  However, the only chart that took the opportunity was silver, as it rallied and approached the target we had for that purple b-wave.   Yet, it did come up a bit short.

But, both gold and GDX were unable to muster the escape velocity and turned back down towards the end of the week, which increased the potential that they will head directly lower to complete this leg of a very complex correction.

Starting with silver, it came within a few dollars of the bottom of the target box, and then started a decline towards the end of the week. But, I think I have enough waves in place to consider all of the purple b-wave as completed.   If silver has indeed begun the c-wave lower, then it should see a bit lower in the coming week, which would complete 5 waves down for wave 1 in purple.  If we then see a corrective bounce, I would view that as wave 2, and it would be a reasonable shorting opportunity, with stops at the top of the b-wave.

Of course, if silver does not head a bit lower in the coming week, then the alternative perspective would be to view this pullback as wave 4 in an ending diagonal, with a 5^th wave still taking us to the target overhead.  This seems like a lesser probability at this time due to the depth of this pullback.  But, since this has been such a complex structure thus far, I cannot completely rule this out.

Take note that if silver does provide us with the 1-2 set up in purple, it very well could take us to the low 40’s, and even an outside potential of the upper 30’s before this c-wave is complete – at least based upon the projections that this 1-2 is potentially providing.  For long-term investors, that would be an amazing buying opportunity for the long-term cycle in silver.

While gold has not completely invalidated the purple 1-2 count, it came within a few dollars of such invalidation.  It is not often that we see a wave 2 this deep actually hold its count.  But, technically, it has not yet broken.  

If you look at the 13-minute gold chart, you will see that we still have a iv-v to complete if we have indeed begun the c-wave lower.  And, as I noted with silver, if we do see lower in the coming week, followed by a corrective wave 2 bounce, this would set us up for the c-wave decline in the coming weeks which would likely point us down to the 3800-4000 region.  Right now, this seems to be the highest probability path based upon the recent action.  

GDX also had the opportunity to break out, but it does not seem like it is going to be able to hold that set up. While it has not yet invalidated the purple count, should we head a bit lower in the coming week, then I would likely be counting this set up as a 1-2, i-ii downside set up, and if we see a corrective wave ii retrace thereafter, this would likely point us down to at least the 60 region for the c-wave, with potential to even see a 50 handle.

But, GDX is hinting to another evil potential path, which I have noted on the 8-minute GDX chart. Should the market head directly to the 81.80 region in the coming week, and then begin an impulsive rally back up through the 88 region, then I am going to adopt this decline as a c-wave in a more complex alt (b) wave in purple, and again looking for that (c) wave higher to complete the larger degree “evil” b-wave scenario.  While this is still a bit of a long-shot right now, it is at least worth keeping in the back of our minds.  

As I have been reiterating over and over and over again, attempting to track the specific path of a b-wave is akin to throwing jello for distance.  They are so variable and take so many twists and turns that it is rare to see a straightforward b-wave structure, especially within a 4^th wave correction.  And, clearly, this one is no exception to the rule.  

For this reason, I have warned repeatedly about overtrading during these structures as it can cause a death by a thousand cuts.  Rather, understanding that you are in this type of environment is powerful information, that, when utilized properly, has you changing your approach to the market as you understand the environment has changed.

You see, those that do not understand this market context still believe we are in the prior 3^rd wave environment, expecting it to continue to act like the powerful rally that concluded in January.  And, we have clearly seen that it has not.  Yet, they continue to pound the table expecting another major move higher (with many calling for $200 silver by summer) without understanding that the market has likely transitioned into a corrective and difficult phase.

As for me, I am still stalking a potential short trade for the c-wave down.  But, most importantly, I am stalking an entry on the long side once this expected c-wave down approaches completion.  Since I am not sure if the rally thereafter will take us back into a bull phase or another corrective rally before another decline is seen, it is prudent to buy the next c-wave decline as we can always sell those positions should a corrective rally ensue.  That is my plan over the coming weeks and months.