In a title fight, when one boxer has been terribly bludgeoned and is being pushed back against the ropes, the ref often steps in to call the fight. We are now witnessing such a situation in the metals world, but there does not seem to be a ref to step in. The metals are on their own and need to come out fighting.
Since the highs of 2011 – the so called heyday for the metals - they were the heavy-weight champion of the world. Everyone who attempted to short them was dealt fast, knock-out punches, just like Mike Tyson’s opponents in the late 80s. No short traders could stand in the ring with them.
But in 2011, they clearly lost their edge. They were dealt their own knockout blows. In 2012, they attempted a comeback. However, in April of 2013, they were dealt yet another knockout blow. So, in 2013, with the gold-bug world in their corner, they attempted yet another comeback. Everyone was so convinced that this comeback was for real, and they would regain their heavy-weight glory. But of late they have been bludgeoned again and are up against the ropes. Will October of 2014 deal them their final knock-out blow?
While I did not expect the metals to have completely fallen apart this past week, we clearly did not get the wave 4 bounce I had wanted to see. They were clearly much weaker than I had expected.
Now, based upon the silver 144 minute chart, as well as the daily technicals on silver and the SPDR Gold Trust (ARCA:GLD), I am still “ideally” expecting that wave 4 bounce to be seen before GLD completely falls apart.
But let’s not lose sight of the bigger picture, and that is that both metals will likely see much lower levels before this 3+ year correction has finally completed.
Now, many of you have been asking me over the last week in our Trading Room at Elliottwavetrader.com if the bigger move much higher has been invalidated yet. My answer is that, while it is much less likely, since gold has not yet broken below its 2013 lows, therefore, it is still quite “possible.” But, there is clearly a lot of overhead resistance which would have to be taken out before it becomes a greater probability. For now, any bounces will be treated as just that – corrective bounces, setting up the final lows later this year.
As for the technical picture, not much has changed from last week on the bigger picture:
silver is following the fractal we noted back in 2013 almost perfectly, which also began a 4th wave of iii just about where we stand at this time. The technicals on the daily chart from 2013 are an almost exact copy of where we stand today. This means that larger degree positive divergences should begin developing for waves 4-5 of wave iii and then for wave iv and v of this final 5thwave down in the 3+ year corrective decline.
In the GLD, there is one thing I did not take into account. Although I have written before about how toxic the GLD is for long term investors, I did not take into account one of the reasons I noted it was so toxic – the loss of value inherent in the fund itself, irrespective of what the price of gold does. So, while gold has not yet touched its 2013 lows, the GLD has due to this inherent loss of internal value. Therefore, it will actually take a strong break down below 113.50 to signal that we are on our way to our lower degree targets sooner rather than later.
Correspondingly, I would like to see silver hold the 16.40-16.60 region as support, and develop a 4th wave bounce back to the 17.35-17.85 region before setting up to attack lower lows in the mid to upper 15 region.
So, at this point, maybe you think I am stubborn, crazy, or both. But, I can assure you that the count, supported by the technicals on the daily and 144 minute charts, seems to suggest we need a bounce here very soon for a 4th wave of wave iii down. So, this will be my expectation over the next week, assuming gold is able to stay over its 2013 low, or simply spike below it, and then spike back over it. But, a sustained break below the 2013 low will be taking us much lower sooner than I expected.
Ultimately, I still would like to see a corrective bounce back to at least the 118 region in GLD before we set up to drive down to much lower lows. I can even see an “evil” set up which marginally breaks below the 2013 lows to run stops on traders, and then shoot back up in this corrective bounce I would like to see. It would stop many people out of their long positions and then cause them to chase the run up in price, at the same time that shorts begin covering. Both of these scenarios would leave a vacuum underneath the market which would support a strong drop later this month.