Back at the end of February of 2015, I provided you with a set up for the metals to decline strongly over a week or two period of time, to be followed by an upside reversal. I was looking for the markets to test or even break their 2014 lows, and then begin a rally towards their 2015 highs. At the time of my writing that analysis, Market Vectors Gold Miners (ARCA:GDX) was at 21.50, Market Vectors Junior Gold Miners (ARCA:GDXJ) was at 27, the SPDR Gold Trust (ARCA:GLD) was at 117 and silver was at just under 17. When I wrote that article, the metals were at a local high, and we called the top of that bounce. But, as the patterns developed to the downside, it became clear that silver was not likely going to test its 2014 spike lows (but did test its regular trading hour lows), but the others maintained their potential.
Two weeks ago, GDX bottomed just over its 2014 lows at a little over the 17 level, GDXJ broke its 2014 lows, and bottomed at just over 20.60, and the GLD came within 10 cents of its 2014 lows. So far, the “evil” pattern has been playing out. The question now is if this rally is going to extend up towards the 2015 highs?
To answer this question, and since I do not know what the market will absolutely do, I will say that we will have an important test before us. Remember, we are in a larger degree corrective pattern, and they can take many unexpected twists and turns. So, for now, I have counted the moves off the lows as, primarily, a wave 1 of a bigger (c) wave, or, alternatively, as an (a) wave of a lower b-wave target. Both of these scenarios still suggest that higher levels will likely be seen over the next month or two.
But, that brings me to a major test the market must now pass, and that is one of support. The current pullback – which was called for in our Trading Room at Elliottwavetrader.net last week in the alerts sent out to subscribers – does not yet look complete. But, as long as the GDX remains over 17.90, the GLD over 111.40, and silver over 15.80, I will continue to be looking higher towards the 2015 highs, with the potential for silver and GDX to exceed those highs, and even attain levels of 20-22 in silver and 23-25 in GDX. A break out over last week’s high will make it clear that my expectation for further corrective/pullback action is wrong, and we are on our way to the higher targets.
However, while we may have a pattern in place to potentially attain the 2015 highs, or even a bit higher, I will likely be exiting any short-term long positions after the next 5 wave move up. While we can certainly see higher than the next 5 wave structure – assuming it is only wave 3 in a (c) wave - anything beyond that point carries with it heightened risks.
While I ideally want to see a full 5 wave (c) wave higher to the levels mentioned above, I do not trust a rally within a corrective pattern, and will look to book profits and begin shorting the market after the next 5 wave rally off support. Again, while my ideal is a completed (c) wave higher, I will trade it as if it is only a 3 wave move higher, unless we see a CLEAR 4th wave consolidation after the next 5 wave rally off support.
DISCLOSURE: First published Sat Mar 28 for members of ElliottWaveTrader.net: