Slight Change In Perspective For Silver & Gold

The metals market has not provided us with much certainty on the smaller time frame this past week. We have had several “possible” decline set ups invalidated in Silver, and no good ones in Gold. But, at the same time, I have no confident pattern set ups that suggest that a bigger break out to the upside is about to be seen. So, at this time, for most metals traders, there is not a high confidence trade to be done on the shorter time frames.

And, as I have been saying for the last week in our Trading Room, I am going to suggest traders wait for a solid initial 5 waves down in gold before beginning to set up their next short trade to take us below the 2013 lows. This will avoid being whipsawed, which is what this market has done best to most market participants for the last 3 years. And, should this result in your missing a potential shorter term trade on the downside, I would not fret. The bigger moves over the next few years should be to the upside, which is where your focus should then turn once we see the next lower lows in the metals.

To that end, I have now modified my count on silver, due to the size of the correction we have seen thus far. Truthfully, it just seems to large now to be wave 4 of iii, especially since we are now out of the acceleration channel that usually contains wave iii. Furthermore, due to the potential for this market to be bottoming sooner than I had initially expected, I do not want to be caught waiting for one more low in a market that could become quite dangerous to short positions after the next lower low is struck. Maybe I am being overly cautious, but one has to know when to be aggressive and when to be cautious when dealing with metals. They can turn on your position faster than any other market. And, I never want to place people in danger of significant losses, especially in metals.

So, once we do see those lower lows, and all that develops from that bottom is a corrective rise, we can always adjust our trading at that point, and protect the longs we own with protective positions at that time. However, should the market begin the next bull run off the next lows in the metals, one will never be able to turn back the clock to garner that lost major buying opportunity again.

At this time, there are clearly enough waves in place to consider wave IV in silver as completed. But, that is still not the same thing as saying the next decline phase looks to be imminent. To me, I do not see a clear set up for that next decline phase as of the close on Friday. Again, I am suggesting that one waits for the clear initial 5 waves down to be seen in gold before one begins setting up for a short position. I have reiterated this position many times in the Trading Room, and I want to be exceptionally clear about this.

Remember, the potential still exists that wave IV can take a little longer and take us a little higher, along with the potential that is still sitting out there that the bigger e-wave in gold may show up. Again, that is not my expectation at this time, but should we see a break out through the resistance noted on the attached GLD chart between 121-123, then that is our signal that we are targeting that higher e-wave in the 130-133 region.

To this, I want to add my short term perspective on the Market Vectors Gold Miners (ARCA:GDX) as well. While one can clearly see a potential for the immediate set up to lower lows in the GDX, the manner in which the metals are now set up do provide some warning that GDX may not be done with its 4th wave as well. I would need to see a strong move down through 20.40 to believe that GDX was on its way to lower lows. Until that break down signal is seen, it looks more like this is a b-wave in the GDX, setting up for a rally to the 22.50-23.25 region before the next downside may be set up again. So, if anyone is considering a speculative long trade on this instrument, I would highly suggest you have a very tight stop, and also size your position appropriately as you can easily be taken to the woodshed should we see a strong overnight gape down. The safer trade would be to allow the next micro 5 waves up to develop before trying a long trade on this ETF.

Along those lines, I want to inform you that we, at elliottwavetrader.net, will be expanding our coverage of miners over the next month. Our goal is to provide continual coverage and updates for individual charts of the stocks that make up the GDX ETF. By doing so,  we can pick the best of those charts to set ourselves up to outperform the GDX once the next multi-year bull phase begins in the metals world.

As for the metals, unfortunately, this means that we are now in a wait-and-see period. Neither side has tipped their hand just yet, so the position of short term traders must be to remain neutral coming into next week, and then playing your cards once the market tips its hand. Remember, trading metals is not like the lotto - you don’t have to always be “in it to win it.”