The metals market is an extremely emotional one. The highs and lows you see with metals traders are evident at each of the extremes. I think we are now approaching another extreme.
Several months ago, back in early June, I notified those willing to listen that gold was preparing to “take off like a rocket-ship.” To my members of ElliottWaveTrader.net, I outlined my expectations for a strong rally to the 137 region, followed by a continued move to the 143/45 region before we see a larger consolidation. Thus far, the market has been reacting as generally expected.
In my last public metals article, I noted that the market was not providing us any signs that a bottom has been struck just yet. Rather, the rally we experienced in October was quite overlapping and did not satisfy my need to see a 5-wave rally to confirm that a bottom has already been struck.
So, in the last week of October, GLD provided us with a small degree 5-wave decline. That provided us advance warning that the next bout of weakness in the metals complex was setting up. To that end, on October 30th, I let our members know that I was preparing for a decline in GLD with an ideal target in the 133-135 region, and was buying puts on GLD for that potential move. This was when GLD was hovering just below the 143 resistance I had cited multiple times in our trading room.
At this point in time, we are approaching my ideal target region.
But, what really amazes me is how bearish many have now become of the metals. I am reading many posts, blogs and articles which are starting to view this as a “fake rally.” Yet, I don’t think the structure of the metals market is supportive of that perspective.
The rally we have experienced over the last year has been quite impulsive looking, whereas the pullbacks have been quite corrective looking. This is exactly how a bull market should behave.
Therefore, as long as GLD remains over the 130/131 support region (and ideally over 133), my next target region is the 157-161 region.
But, before I am willing to trade that next rally aggressively, I am going to wait for the market to provide us with a clear 5-wave structure off a low I expect to be struck over the coming week or two. Once that 5-wave structure completes, I will be preparing an aggressive trade posture for the next larger degree rally phase I expect.
In the meantime, I am looking for a local bottom to be struck in our gold price forecast over the coming week or two, and followed by a 5-wave rally off that low. That will then put us on warning to prepare for the next major rally phase over the coming months.
Lastly, the next time we see a 5-wave structure rally breaking us up through the 139.50/140 resistance region will be the first indication that the next rally phase has likely begun.
For those that would like to understand this methodology a bit better, please feel free to read through the six-part series I penned on ElliottWaveTrader, which explains my methodology from the theoretical and technical perspectives.