With the GLD taking out the 126.15 level, it has invalidated the immediate bearish stance that concerned me last week.  This has now opened the door to the bigger pattern I had wanted to see for quite some time now – the c-wave to the 130+ region to complete the larger e-wave of the 4^th wave triangle.

We have discussed this pattern ad nauseam over the last month or two, so I am simply going to remind you of what I said several weeks ago about this pattern:

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 5th 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 – 4th 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 4th 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 4th 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.

But, with all that being said, I want you to note the bearish count that I have maintained on the 144 minute chart, but slightly modified from last week.  This count has us in a c-wave of a red wave 2 of wave iii down.  So, yes, as I was reviewing the chart, there is a bearish perspective still on the chart.

So, of course, you are probably pulling your hair out by now and wondering “so which is it, Avi?”

The answer will come in the next move down in the metals.  If this is a c-wave up towards the blue box, then I would expect a pullback next week towards the 124 region in a corrective 3 wave move.  The 3 wave move into that region would be a wave 2 retracement in the c-wave up to 130+.

However, that 124 region is also the .618 extension of the bearish 1-2 set up down in wave iii.  So, if I see a CLEAR 5 wave structure into that same region, then I will be right back on the immediate bearish bus on the way to the 100 region at high speed.

Ultimately, the next pullback in GLD should provide us the answers we are looking for. If it is correction, long is the play to 130+.  If it is impulsive, well, this may be a wonderful shorting opportunity with a fast move being seen down towards the 115-119 region for just wave 3 of iii.

As for silver, I have been noting all week just how terrible it looks right now, and sure supports any bearish count on may want to come up with.  While the drop from the 21.30 region is not the most impulsively structured drop we have seen, silver clearly has been unable to move off the floor upon which it was resting this past week to provide us even a reasonable retracement.  It’s price action has been quite concerning all week, even though GLD has been a bit stronger.  And, when silver cannot get off the floor, it strongly argues that one has to be very careful on the long side.  Therefore, until silver is able to climb back over the 21 region, I am not able to entertain any semi-bullish count on this metal despite what its yellow sister is going.

What is truly interesting is that the most recent Commitment of Traders report supports this unusual dichotomy of patterns I am seeing in silver and gold. Specifically, the commercial traders have added a large net long position this past week in gold, while they also went further net short in silver.

In conclusion, I am still quite cautiously looking up to the 130+ region in GLD.  However, due to the bearish posture presented in silver, I will be watching the next retracement in GLD VERY carefully, and will not hesitate to short GLD should we see a 5 wave decline into the 124 region next week.

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