When I look at the 3 charts that I follow in the metals complex, they seem to be telling a different story today, at least in their micro structures.

Silver seems to have broken out of its downtrend, and can be viewed as having completed wave i of its (c) wave to the target box above.  GLD seems to be stuck in neutral, with the same “potential” structure as silver, but without as much clarity to its micro count as silver has potentially presented.

And, then we are left with the GDX.  As long as the GDX remains below the 23.05 level, it still has a smaller degree set up to test the 22 region before a rally may ensue.

So, on Friday (Nov 3), GDX has now dropped down and provided us the lower low I was looking for this past week right into the support region I noted last weekend between 21.95-22.30.  Moreover, both gold and silver have now pulled back from their rallies begun this past week, and have still retained a set up to rally in the upcoming week.

Based upon the smaller degree wave counts, it certainly still seems as though the miners and the metals are potentially in different patterns, with the upcoming week set up to provide us further confirmation of this potential.

As I have noted for the last several weeks, silver really seems to be the more telling of the metals charts.  I have been following a potential count which suggests that a (c) wave rally within a b-wave of wave ii is taking shape.  And, I have noted that as long as we hold over the 16.40-16.50 support region, we can rally back up towards the September highs.  

This past week, silver broke out of its downtrend channel, and suggested that the (b) wave of the b-wave had completed, and that we also completed wave i of the (c) wave of the b-wave rally.  While the micro structure can still support one more small drop before a rally may begin, as long as we hold over 16.65, my expectation is to see us rally back up towards at least the 17.85 region. 

However, if silver were to break down below the 16.65 level, it would break its immediate upside set up, and place this pattern into serious question.  And, if the market would then continue below the 16.30 level, it certainly opens the door for a much larger decline to be seen in silver.  So, please remember that my primary expectation is that any rally we see is likely going to be corrective, which means you must remain quite vigilant, as it is quite possible that the market may not provide us with the larger bounce that I ideally want to see, despite my primary expectation.  Along these lines, I have now provided you with the parameters which would suggest the market may be dropping a lot deeper than I had initially expected.

Now, as I have mentioned in the title to the article, I am starting to see a “silver lining” in the market action, and it relates to the miners rather than silver itself.  I have warned that GDX could see as much as a 30% decline down to the 17 region once we broke below the upper support in September.  And, that was based partly upon my read of the ABX, which is one of the major holdings within the GDX.  This past week, ABX has dropped almost to the point where it would complete wave iii of (c), as you can see from the attached chart of the ABX.  (Also, please note that I have dropped down our resistance region on the ABX chart).  Yet, GDX has not seen a commensurate drop alongside of the ABX.  While GDX may certainly catch up in the coming week or two, once ABX begins its wave iv bounce, it will likely pull the GDX up with it.  And, should that wave iv begin in the coming week or so, it may suggest that the GDX may not break below the 21 region. 

So, while we certainly had a set up to see the GDX drop to much lower levels, the recent relative strength we have seen in the GDX as compared to the ABX may suggest that it may not see as deep a drop for which it had been set up over the last few weeks.  And, as I have noted before, the next rally will likely tell the story for the miner’s complex as a whole.  As long as we do not see a direct and strong break below the 21.20-21.87 (slightly modified support region), we may see the GDX retain a more immediate bullish stance, which could suggest the yellow count may take shape into the end of the year. 

Over the past several months, especially since we broke below the upper support back in September, I have been noting this market has now entered a region of uncertainty.  And, I am still of the opinion that we will need to see how the next rally takes shape for us to have a better understanding of which pattern we will need to follow into the end of the year.  But, what these patterns have in common is that it still does not look like this market will be ripe for a major rally again until early 2018.  And, the probabilities are beginning to increase that the GDX may not see as deep a drop as I had initially expected, and the next few weeks may provide evidence that can make this potential much more likely than not.  Stay tuned. 

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

By Avi Gilburt via Elliot Wave Trader