We will have Avi on for a daily editorial tomorrow to further elaborate on his thoughts outlined below.

Even though many maintained a strong bullish bias last week, I tried to warn that further upside was quite far from being “in the bag.”  I have been continually noting that everyone should not be blindly bullish, but, rather, recognize that there is a bearish pattern that remained on the chart.

And, as we speak today, that bearish pattern may yet accelerate to the downside in both metals, setting us up to see lower lows in September.

For the last few months, as we have been attempting to navigate this triangle in GLD, I have been quite concerned about being able to find the ideal shorting point for a 5^th wave down to lower lows.  The reason is that the completion of a triangle is often subtle, especially if an e-wave of a triangle truncates, which we may have potentially seen.  Furthermore, while I can come up with a bearish impulsive count which suggests we may be in wave 5 down already, it is clearly less than ideal, and has many irregularities which do not make it as high confidence a trade as I would normally like to see (which has been discussed many times in prior weeks).

But, until we see some suggestion of invalidation of this bearish potential, I would be foolish for looking higher just yet, even though my ideal scenario would have been a rally over 130 to complete the triangle with more authority.  But the market has been quite stubborn and has refused to provide us with even a glimmer of invalidation thus far.

Last week, I noted that we had the potential to drop below the 123 region, which would open the door to test 119, and ultimately 114/115.  However, the drop, SO FAR, has been less than convincing due to the lack of high volume selling.  High volume selling is what is ordinarily seen in the heart of a 3^rd wave, and this high volume selling must be seen in the upcoming week to sustain a count for us being in the heart of a 3^rd wave down to lower lows into September.  A continued meandering down will support the potential for another rally attempt to 130+.

The micro pattern we have been developing down off the 127 high has us just about completing a wave iv in a 3^rd wave down, as long as we remain below the 124 region (.764 extension down within that pattern potential).  Since 5^th waves are often the strongest in metals, my expectation is that, should we really be in break down mode, the next move down should be a high volume selling spike that provides extreme extensions to the downside, which, ideally, takes GLD towards the 119/120 region. In fact, the lower Fib levels I would expect to be targeted in a bearish scenario would be the 119.60-120.60 region.

Alternatively, should the market be able to stage an impulsive rally through the 124.50 region, then I will be considering a long trade towards the 130+ region, based upon how that rally takes shape.

Last weekend, we were looking for a strong decline in silver below the 19.25 level to signal that it was indeed in the heart of a 3^rd wave down.  However, we saw no such action this past week, with the 19.25 region providing support thus far.  And, based upon the current decline structure, I have to lower the support region to the 18.85-19.10.

And, again, we are left in the position of needing a strong decline below this region of support on high volume to signal that we are on our way to lower lows.  Alternatively, the technicals on the current decline are truly more suggestive of a corrective decline, rather than an impulsive decline. If this is indeed a corrective decline, we will need to see a 5 wave structure through the cited resistance region to signal that the market still has designs on the 21-23 region to complete a bigger corrective pattern for this larger degree 4^th wave.  But, until such time we see that 5 wave rise through resistance, we have to continually be looking for signs of the 3^rd wave down strong crack of support.

So, allow me to remind you of last week’s conclusions, as they are still very much applicable:

In conclusion, I have been “hoping” for a run up to the 130+ region in GLD to complete this e-wave of the 4^th wave, but the chances of it happening are becoming much slimmer. . . So, whether you have a bearish or bullish bias – and I know we have some on the elliottwavetrader.net with strong feelings on both sides of this trade – you must recognize the levels of support and resistance I have noted herein.  And, please do not maintain your bias if the market provides a clear directional move over the next week, as I suspect it finally will.