First published Sat Mar 7 for members of ElliottWaveTrader.net: At the end of last week, I outlined to you the bearish set up in place for the metals. In fact, I noted how this set up would be “evil in nature, as it would likely hurt the most traders/investors from a psychological standpoint.”
From an anecdotal sentiment perspective, before I go into this week’s analysis, I would like to give you a little feedback from this year’s Prospectors and Developers Association of Canada (PDAC) annual convention. I was honored at being a featured speaker there this year, and discussed how I viewed us as being on the cusp of the next great bull market in the investment world. But, the most common comment I received from all those with whom I spoke was that the attendance had been quite underwhelming. You see, to one who tracks sentiment in the market, this speaks volumes. To me, it signals that many are losing interest in the metals and mining markets. It means that market sentiment is finally approaching a point at which we can finally see a long term low being struck. And, if I am right, next year will likely mark the lowest attendance they will ever see, followed by much stronger attendance in 2017.
Now, back to our feature presentation – the current metals set up. I know I outlined a very evil pattern set up, which could take us just below the 2014 lows, only to take us back toward the 2015 highs. Some of you must think me as being quite evil myself for being able to identify such a dastardly market set up. But, please let me assure you that I am simply reading what the market is providing to me. Yet, I am also making certain assumptions as to what would cause the most pain to all market participants before we see the final flush down in the metals, which will likely see most throw in the towel. But, I think that we need to see more bullishness in the market before we can see much lower levels, as too many have now turned bearish again, with many looking toward the $1000 level in gold.
And, as I noted last week, and it is worth repeating, the most evil script to set up the most bullish sentiment would be as follows:
First, those who believe we have bottomed will have their hearts in their throats as the market heads down to the 2014 lows. Those that believe we have lower lows to be seen will be shorting aggressively, and expect the bottom to fall out, should this drop materialize into the middle of March.
However, if this larger flat plays out, the (b) wave would bottom right at the 2014 lows, or even slightly break those lows, potentially stopping out the longs. My expectation is that it would then reverse and develop into a tremendous short squeeze, which would then have the stopped out longs chasing it all the way back up to the 2015 highs, along with causing the shorts to frantically cover their positions. And, such a move would make everyone believe, once again, that the double bottom has held, and the bull market is back. Bulls would become quite confident again, and bullishness would likely rise to a level which can support a very strong drop to much lower lows later this year. This also sounds strangely similar to what happened in 2013.
Based upon our silver chart, which pointed the direction down, as long as we remain below the 16.16 and 16.37 resistance levels, the chart is pointing toward a test of 15.40-15.65. And, as you can see, I have slightly modified support down to the 15.40 level, which represents the 1.236 extension in this potential c-wave down. Once that level breaks, it makes it highly likely that we are on our way down toward the 2014 lows. So, I will be following the clearer silver pattern as my cue for metals and miners at this point in time.
The alternative count at this time would only take effect on an immediate break of resistance, and would place us in a wave b/ii in the metals and miners. It would also mean that we are likely in the final run to the lower lows to end this long term correction. While I will also consider a bottom on Friday to even be a b-wave bottom, I will find it much more likely that a true b-wave bottom would take the markets toward the 2014 lows. Ultimately, if this current region represents a bottom, it will still leave some questions in my mind about how the bounce from this region is to be classified, but I will be playing it safer, and assume the run to the final lows has begun should we bounce in a wave b/ii from this region. That means I will be using the rally from this region as an opportunity to fully hedge my long-term long positions. I will not be aggressively shorting in that case until another 1-2 set up to the downside has developed.
For now, my expectation is that metals will continue lower in my “evil” scenario noted above. In fact, I can easily see (ARCA:GLD) even take out last year’s lows to stop out a significant number of long traders before it begins a rally back toward the 2015 highs again.
And, as many have asked me, we certainly could now be on our way to the final lows in the metals. But, I have to say that I do not think that is the higher probability perspective based upon the nature of the decline we have witnessed from the 2015 highs. I think we need to bring more bulls back into the market before we take many more out of the market when we finally head to much lower lows.
But, should I be wrong, and we head directly to much lower lows, I sincerely hope your focus will be on the long-term long side of this market, rather than attempting to short for every last drop of blood which will be spilling in the streets. Remember what Baron Rothschild said . . . that is the time to buy, not sell.
See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-YI-20150308679.html
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.