Commodities : We Have A Bifurcated Metals Market

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11/03/2017 | 09:52 am
There is no doubt that the action we have experienced in the metals complex in 2017 has been exceptionally frustrating, especially as the market presented us with several break out set ups that did not follow through. And, when a larger bullish structure presents you with break out set ups, probabilities suggest you have to favor those set ups, as I did in 2017.
But, the market has simply refused to follow through on each set up, and has caused significant frustration to anyone who has been looking for those break out signals this past year, and especially me.  And, even though each bottoming set up we noted in December of 2016, and in March, May and July of 2017 provided a rally that we expected, each rally invalidated the bigger break out set up each time through the year.

In fact, I will probably classify 2017 as one of the most challenging years I have dealt with in the metals complex since I have been providing my analysis to the public.  When you consider that I began in 2011, and caught the top of the gold market within $6 of the high struck, and then caught the bottom of the market at the end of 2015, I really find 2017 to have been much more difficult than either of those years, or any of t hose in between.  And, this is despite the fact that we have not even broken a single bottoming point we noted through the year, and still remain over even the July lows.

But, as I have been noting in my updates since we broke upper support in the market over a month ago and invalidated a direct break out, the metals market is in a region of uncertainty.  In fact, I have been noting the potential for the GDX to drop down to the 17 region, as ABX was signaling a potential drop down to the 11 region.

As we saw this past week, ABX seems to have begun its run to those lower regions.  Yet, both gold and silver have still held their respective support regions.  So, for now, it seems the market is a bit bifurcated.  While I still want to see how the next rally in the complex takes hold, my expectation remains that it will only be a corrective rally.  And, even the ABX should begin a corrective rally within the next week or so.

However, GDX has now dropped below the 22.70 support region earlier than I had initially expected, and it places it in a further precarious position.  As I noted in my mid-week update to our subscribers, should the GDX break 22.70 support, and drop down to the 22.30 region next, it suggests that it has already begun its wave 3 lower, in its most bearish set up towards the 17 region.  And, this is my more likely scenario right now, despite GDX ending the week only 13 cents below the 22.70 support region.

Right now, GDX has minor support between 21.95-22.30.  I would like to see this region hold, and finally provide us with that “bounce” I have wanted to see.  My expectation is that the bounce will likely remain below the 24 region, and it may not even be able to exceed the .618 retracement of wave i of 3 down in the 23.30 region.  Therefore, the main resistance region for this continued drop resides between 23.30-24.  As long as the bounce is held in check within that resistance region, the set up remains quite bearish, and potentially pointing down towards the 17 region in the coming months.

Alternatively, if the GDX is able to rally through the 24 region in an impulsive fashion from over the 21.95 region, then, and only then, will I consider a more immediate bullish potential, as noted in yellow on the daily GDX chart.  Again, the structure we are now seeing in the ABX suggests that the more immediate alternative bullish count represented in yellow is a much lower probability at this time for the GDX, as the ABX is a large component of the GDX.

Yet, both GLD and silver present a different potential as long as the current support region holds in both charts.  Most specifically, silver has still held its 16.50 support region, and the technicals have barely held onto their divergences suggestive of a short-term bottoming.  But, no doubt, it has been struggling down here this past week.  Based upon the manner this diagonal is taking shape to the downside, I have to slightly modify silver’s support down by about 10 cents to the bottom of the channel in the 16.40 region.  And, as long as it can maintain support within this ending diagonal downtrend channel, I will be looking for a strong reversal to take shape.  But, note, the ideal structure still calls for one more lower low to complete this diagonal. 

When silver is able to break out of this declining channel, and move strongly through 17, it signals the start of what I want to see as a (c) wave rally, which ideally should approach, or even slightly&nbs p;exceed the high made in September.

However, if silver were to break 16.40 strongly and follow down below 16.20, that would invalidate the upside set up now seen on the chart, and opens the trap door for silver to break down to a lower low below that seen in late 2015.

The issue with which we are trying to resolve in the metals right now is if we can see a larger degree b-wave rally take hold, which can then keep the metals in a more constructive bullish pattern going into year end, as presented on the silver and GLD charts.  While it would still suggest we see a c-wave down into the end of the year, as you can see from the GLD and silver charts, it does make this much more bullishly-bent corrective action.  However, should silver see a direct break of 16.20, that could open up that trap door for the metals, just as seen in the ABX of late.   

Again, my overall expectation remains that the metals complex does not look ready to give us another break out set up just yet.  When we broke the upper support back in September, it turned me quite cautious, and certainly opened the door for a larger drop before we are able to re-set the bigger break out set up, as I have been warning since we broke that upper support in September.

So, while I maintain a larger degree and longer term bullish bias in the complex overall into 2018, if the metals can hold this region of support in the coming week or two, and then provide us with a bigger b-wave rally, it will go a long way in maintaining an upper region of support from which we can begin to strong rally in 2018.  But, a strong break of 16.40 in silver will provide a warning to an invalidation of this potential.  So, please stay on your toes in the metals complex over the next two weeks, as I see it as a crucial turning point for the near-term action in the complex.

See charts illustrating the wave counts on the GDX, GLD & Silver (YI).



Avi Gilburt
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