As I have now been publishing my analysis on markets for a bit over five years, I have seen these set-ups quite a number of times on many different time frames. You see, the metals complex has now dropped for months, even deeper than we had initially expected back in September when we began looking down after the first corrective bounce.Indeed, we have been dropping since that time with positive divergences developing on most of the charts we track. Below, SPDR Gold Shares (NYSE:GLD) daily chart:
When we have seen these same set-ups in the past, the longer and deeper they go, the stronger the reversal we usually see. Again, this is an exercise in probabilities, and the probabilities suggest that the market will likely turn up in a very strong manner after this type of positively divergent decline. Below, VanEck Vectors Gold Miners (NYSE:GDX) daily chart:
The best example of this same scenario that I can remember was back in 2011. The stock market had just seen a strong rally off a major bottoming in 2011, but was dropping during the month of November, which made many people believe the prior rally was going to be completely nullified.
I remember this period of time well since I was calling that drop in November a corrective pullback, which I believed was setting up a strong rally. Many were fighting me on that perspective at the time, believing that the market was going to be dropping much, much lower.
In fact, when you look at the pattern for silver futures, below, it even looks a lot like the current gold pattern, and the sentiment is clearly in line with that time period as well.
For those that were with us back then in 2011, not long after we opened our doors at Elliottwavetrader.net, you may remember that I was actually “bullish” as we went into the Thanksgiving holiday due to the extent of the divergences we had seen to that point. And, if you also remember, the day after Thanksgiving saw a 4% rally off that bottom, with approximately 10% seen within a week. I view the current set up in the metals complex as no different than that one, but all we need is a buying trigger.
If you want to understand why I still maintain a larger degree bullish bias, please re-read my last two weekend updates. I have been very clear why I believe that the greater probabilities still suggest this is a corrective pullback, even though it is deeper than I had initially expected.
While I can certainly be wrong in that assessment, my experience has placed me in this position many times, and the great majority of those times had me viewing this type of pullback correctly, no matter how many in the market believed otherwise at the time. Again, I can always be wrong, as I am a human being dealing in market probabilities, but based upon the downside pattern structure and the divergences we are seeing at the current lows, the probabilities still suggest this is a corrective pullback. And, I can only side with what the charts have correctly told me much more often than not, based upon the probabilities as I see them. But, clearly, nothing is 100%.
So, while the micro structure may still suggest the possible set up for a last spike down and reversal, in the great majority of the times, the market seems to be setting up for a strong reversal back to the upside in the very near term. And, my job is to provide you my honest assessment of what I currently see in the charts, and what my experience suggests the market will do. And, since I have been right a lot more often than wrong, I still expect the same in this situation, as the probabilities, based upon market history of similar set-ups, suggest a strong rally is just around the corner.