Complex Patterns for Gold & Silver
When we look at the smaller time frames, and even the 144 minute chart, it was clear that this was not a standard impulsive count to the downside for even a stock, and even more so for the metals, which tend to have exacerbated downside moves, especially during 3rd waves down. But, the move down was more in the way of a steady decline than a strong move down. This is what has almost forced me to count the downside action over the last few months as only corrective.
After having become completely frustrated with the overall ugliness in the patterns of the metals, and as the pattern seems to only be getting more and more complicated as we move through the market machinations, it is forcing me to re-evaluate the pattern.
Since I always try to fall back upon the adage Occams Razor, and the current pattern has become exceptionally complicated as we currently have it counted, I have decided to take a step back in order to find a much simpler explanation and wave count.
But one of the primary reasons for not choosing the simpler count until now is that there seems to be a triangle in the middle of the pattern. Normally, when one sees a triangle, 99% of the time it is either a b-wave triangle, or a 4th wave triangle. Since it was clearly not a 4th wave triangle, the assumption was that it was a b-wave triangle and a c-wave was going to begin when the triangle completed, which would then complete the entire corrective pattern. However, there are the very rare instances that a triangle will be found as a second wave, and this now seems to be one of those rare instances. This is what has confounded our count for the last few months.
When silver and iShares Silver Trust (SLV) broke its December 2011 low, it was the first factor in making me take a slightly different look at the metals. This past week, while the metals were moving up in what should have been a smaller degree 3rd wave up off the lows, it was not accompanied by anywhere near the type of volume we would see in a bullish 3rd wave up. Rather, it kept screaming to me that it was a c-wave in a corrective rally. So, while trying to take apart the charts every which way possible, I believe that I have come up with an “impulsive” count for a c-wave down in a larger 4th wave. I have to be honest that I am not happy with the lack of appropriate Fibonacci relationships within the waves, since they are not of the standard ilk, but the pattern does make the most sense from the larger perspective. Therefore, I will most likely be adopting this count, unless someone can point out to me that the count is in error for some reason.
Furthermore, when we bottomed in December of 2011, many of you will remember that it did leave me scratching my head, somewhat, since we did not hit the ideal Fibonacci targets I had identified before we even hit the tops in the markets. It did surprise me that the market turned up before those levels were hit. But, it seems that the markets may be setting up right now to finally hit those targets before the parabolic 5th wave up begins.
As you can see from the daily silver chart and the 144 minute SPDR Gold Shares (GLD) chart, the counts are now aligned as impulsive counts in a c-wave of their respective 4th waves. Both are now setting up for another high to complete the 4th wave in their respective c-waves. For GLD, the target region will be between 159 and 161.75. Breaking over 161.75 will invalidate this count. As for silver, the potential target is the 28.75 region, with the outside possibility that it can move as high as the 30 region. Based upon this count, I may suggest to aggressive traders to enter a speculative short position. The targets for the trade will be the old targets of the 22/23 region in silver and the 143/144 region in GLD. If we see the metals align to the equity markets, then we should be making the top within the next two weeks, and the decline may last into September, which will coincide with a decline in the equity markets.
If you take specific note of the silver daily chart RSI, you will see how the possible pattern lines up from an Elliott Wave perspective. We most often see the deepest technical readings in the 3rd of 3rd wave down, and positive divergences begin on the 5th of 3rd wave down. So, it seems we now have both of those completed, which means we need to see one more drop for the wave v of c of (4) which should maintain this progression of positive divergences, and would be the final signal for a buying opportunity.
If we see a 5 wave decline follow through based upon this analysis, then I will be suggesting long positions at the target levels, assuming we see positive divergences on the daily chart, and positive divergences for the 5th wave of the c-wave on the smaller time frame charts. This would potentially set up the parabolic rally for which we have been waiting. The rally may not take more than a few months, but will likely cover a lot of ground and will likely make new highs in each market quite quickly, with the potential for silver to exceed $60 and for gold to exceed $2,100.
For those that are currently long, you may choose to maintain those long positions, and simply add another position if we get confirmation of this pattern, or sell into the next smaller rally that continues with low volume non-confirmation. Then you can buy at a lower price.
So, for now, let’s see if the market moves up to our target region over the next two weeks on low volume, which should confirm the shorting opportunity for our aggressive traders. If we then get the downside action we expect, then everyone should be buying at the target lows, potentially in September.