-- Published: Tuesday, 3 March 2015 | Print | Disqus
By Avi Gilburt
Let’s begin this week with a review of what we know, from a higher probability perspective, as it currently relates to the metals market. First, it is quite likely that lower lows will be seen later this year. Second, we will likely see a rally before we set up the drop to those lower lows.
However, what we lack is a high probability near term structure, which creates a large schism in our ability to aggressively trade the metals in the short term.
Based upon the greater probability patterns I have seen over the last few weeks, the market does not yet seem to be in a position which will take us to the lower low targets we have set years ago to mark the bottom to this metals correction. But, at the same time, the pattern we have been left with at the end of this week does not preclude a re-test of the 2014 lows before a (c) wave rally takes hold. Yes, there is a pattern that would provide us with a large corrective flat pattern which will take the metals back down to their 2014 lows, and then back up to their 2015 highs.
As you can see in the attached daily GDX and silver 144 minute charts, there is a pattern in place which can take us back down towards the lows of 2014. Silver has the cleanest of patterns for this set up, and as long as silver remains below the 16.90 level, we can see a 3rd wave drop within the heart of a c-wave of this (b) wave, which can take us back towards the 14 region in silver. A breakdown below Friday’s low, with follow through below 15.50, has me targeting the 14 region again. But, I don’t believe that will take us much below that region. Rather, I think that would set up a (c) wave rally back up towards the 2015 highs.
Now, I have to admit that this pattern would be “evil” in nature, as it would likely hurt the most traders/investors from a psychological standpoint. First, those who believe we have bottomed will have their hearts in their throats as the market heads down to the 2014 lows. Those that believe we have lower lows to be seen will be shorting aggressively, and expect the bottom to fall out, should this drop materialize into the middle of March.
However, if this larger flat plays out, the (b) wave would bottom right at the 2014 lows, or even slightly break those lows, potentially stopping out the longs. My expectation is that it would then reverse and develop into a tremendous short squeeze, which would then have the stopped out longs chasing it all the way back up to the 2015 highs, along with causing the shorts to frantically cover their positions. And, such a move would make everyone believe, once again, that the double bottom has held, and the bull market is back. Bulls would become quite confident again, and bullishness would likely rise to a level which can support a very strong drop to much lower lows later this year. This also sounds strangely similar to what happened in 2013.
Yes, this is an evil pattern, and should it play out it would likely hurt the most people on both sides of this trade. But, please do remember that this is simply conjecture at this point in time. We will need to see the market break Friday’s low, and then follow through below the 15.50 level in silver. If the market chooses to follow this pattern, the drop to the 2014 lows would likely occur within the next week or two. So, it really will not take us long at all to know if we will see this pattern following through or invalidating. And, should this pattern fail to follow through to the downside, we will know quite quickly, with a rally through the 16.90 level early next week.
A move through the 16.90 level in silver would have me view the market as setting up in a wave ii/b of the final drop to the lower lows we still expect in this market. But, that should take much more time to complete and potentially take us into the end of March.
See Avi’s charts illustrating the wave counts on the metals below:
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
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-- Published: Tuesday, 3 March 2015 | E-Mail | Print | Source: GoldSeek.com