Last week, I provided you with a relatively prescient prediction, despite most of the market’s expectations to the contrary:

based upon the set-up we now have on the table, as long as the GLD remains below the 127.50 level and silver remains below the 21.30 level, I am looking down towards the 121-123 region in GLD, which is what I will now be using to gauge the market action.  Depending upon how we move into that region, it should give us indications as to whether that region will hold as support in a larger b-wave of this e-wave of the larger degree triangle.

For the last three weeks, my ideal scenario has been to see a larger degree b-wave drop towards the 121-123 region, followed by a rally back to the 130 region to complete the larger e-wave.  However, due to various structures to which I pointed last week, I was very concerned about whether my ideal scenario would play out.  Specifically, silver’s very bearish poster is what concerned me the most.

So, I was going to maintain an open mind this past week and rely upon how we developed to the downside to provide clues to the bigger pattern.  And, as I noted continually throughout the week, should the market follow the more bearish red count I was providing to take us down to the 119 region, then we have a clear indication that the market had topped.  However, with the weak downside extensions I was noting through the week, the market was signaling the potential for the b-wave holding support.

By the end of the week, silver had gone a long way towards providing signals that it may invalidate its immediate uber-bearish posture, but it has not done so just yet.  If it is able to move another 30 cents higher and take out the 21.10 region in a 5 wave structure, then it makes it much more likely that it is not in an immediately bearish posture.  Rather, it would open the door to it possibly still being able to target our initial target in the 23 region.  But, in order for me to view that perspective as much more likely, I still need to see a full 5 waves off the recent bottom, followed by a corrective 3 wave pullback.  If this is going to happen, the 5 waves up should be completed by Monday or Tuesday, as we only have 3 waves up off last week’s low.

As for the GLD, we came up a bit short of the ideal target region on the downside, as the market seems to have truncated the potential (c) wave we were tracking this past week.  Should we see further extensions over the 126 region on Monday or Tuesday, that would provide us with a 5 wave structure off the recent lows, which would get aggressive traders into buying a 3 wave corrective pullback.  But, as of the close on Friday, we only have 3 waves up off the lows, and we need a full 5 waves up to confirm the bottom of the b-wave being in place.

The ideal target for this c-wave  – IF the b-wave will prove its bottom being in place – would be at least the 130.50 region, which is where the c-wave in this e-wave would be equal to .764 times the size of the a-wave, as well as where the .764 retrace of the d wave decline resides.

However, when so many people see a triangle, as we seem to have right now, it makes me very concerned about the reliability of the triangle from a trading perspective.  Since this 130.50 target is also where the 1 year downtrend channel for this triangle also resides, there may be too many people seeing this potential for this to be a high probability scenario.

Rather, I am thinking that we may have to at least dispel some of the notion that this triangle is the operable pattern to trade, which means I would almost want to see us move through that downtrend line at the 130.50 region, and head to the next target, which is in the 132.75 region.  This is where the c-wave would be equal to the a-wave in this e-wave of the triangle.  Furthermore, it is just below the level of the triangles’ c-wave high, which cannot be pierced or else it invalidates this pattern as a triangle.  Furthermore, if we were to target the 132.75 region, not only would we potentially dispel many of the triangle notion once we break through the downtrend line for the triangle, we would also strike the top of the downtrend channel we have created during this 3+ year correction, as you can see from the attached daily chart.  Furthermore, it would likely strike this region within the 2 month timing window we targeted for this e-wave, which would complete around the 5^th of August, and on serious negative divergence on the daily MACD.

So, maybe I am trying to out-think the market, or maybe this is exactly what is going to happen.  But, all of this is academic at this time, and only meant to prepare us for the possibilities right now.  Since any rally is going to be a c-wave and should be a 5 wave structure, as we develop waves i and ii within the c-wave higher, we should be able to come up with further confluence to let us know which of these two targets is a higher probability at this time. But, please remember that, as I write this, there are only 3 waves up off the low, and the door is still open for the GLD to decline further if we don’t get 5 waves up completed early this coming week.

I will also warn you right now:  I will be watching this impulsive structure to the upside like a hawk.  Any deviation from a standard impulsive structure up will get me very skittish about further upside follow through, as I consider it somewhat dangerous to trade upside into completing an e-wave for a triangle, which can always truncate.

Remember, my primary perspective is that we are in a long term consolidation pattern – 4^th wave – which is the most variable of all Elliott Wave patterns.  For this reason, I am trying to maintain an open mind to all possibilities, as getting locked into only one perspective is the easiest way to get hurt within a 4^th wave.  It was for this same reason I was being so careful last week and kept an open mind as to which of the two possibilities would play out, even though many of you wanted me to be definitive.  I am sorry to say that there is nothing definitive about a 4^th wave other than you can easily be hurt if you do not maintain an open mind and be as nimble as possible.

As for those who believe a long term bottom is in place in GLD, a move through the long term downtrend channel in the 133 region over the next few weeks would make me begin to consider that a long term market bottom could be in place, as that would take us out of the 3+ year downtrend channel. Confirmation would come in a move through the 140 region, as I have noted many times before.