By Avi Gilburt
While so many were getting so bullish of the metals market over the last few months, my work was telling me that we were not likely going to be seeing a major break out just yet. So, I have been waiting patiently for a good set up for another long trade.
But, during my wait, I have seen extremes in sentiment again. At the highs, the extremes were quite bullish. And, now, the fear is starting to creep back into the market.
Everyone seems to be waiting for the next shoe to drop and for the metals to crash down again, with so many pointing to the heads and shoulders pattern which is supposedly about to make gold crash. In fact, today, one of my members on FATrader.com asked me a question regarding the bearish implication of silver breaking a long term trend line.
But, I think silver has been providing us with the clearest indications in the metals market. It had me looking higher as we caught that bottom in November of last year, and it had me looking for a pullback when we were topping out at the end of January. In fact, even in the smaller degree moves, we caught the top in silver last week, and have been looking down for a drop since then.
But, now, silver is providing us with a bottoming indication rather than a selling indication.
On Thursday and Friday, I was outlining to my members what I see as one of the best set ups in the metals market at this time. Over the years I have been analyzing metals, one of the best bottoming indicators I have ever seen is the MACD on the 144-minute chart. In the last seven years that I have been closely tracking it, I think it may have failed twice to correctly follow through with the signal that it is now providing us.
You see, whenever silver seems to be completing a downside structure, and has positive divergences, as we now have building in the MACD on the 144-minute chart, it has forewarned of an impending upside reversal almost every time. While it does not tell us what that reversal will turn into, it has been almost perfect in warning that a reversal is setting up.
When the market is completing a corrective Elliott Wave structure, and this MACD is providing us with the positive divergences we are now seeing, it tells us that selling is drying up, which supports our Elliott Wave analysis that we are completing a corrective pullback.
For those interested in the detailed Elliott Wave structure, this is how I presented it to my members:
Currently, my micro count has the market bouncing in a wave iv of [v] of [c] within an a-wave. And, as long as we remain below the 15.20-15.30 resistance, I can reasonably expect one more decline to complete this downside pattern. Moreover, when the MACD has several divergences as shown on the chart right now, and we see one more lower price low, that is often a very strong buying opportunity for what seems to likely be an impending reversal to the upside. Support for silver right now is in the 14.60 region, with a break down below 14.50 from here likely invalidating this set up. But, the set up is rather clearly in place at this time.
My expectation is that the next rally will only be a b-wave in a larger wave 2 flat, as shown on the chart. But, I think this would align quite well with the rest of the market, assuming the rest of the market continues higher to complete its 5th wave of wave 1, with everything then moving down in unison to complete their respective 2nd waves.
See charts illustrating the wave count on silver as well as gold.
