-- Published: Tuesday, 9 December 2014 | Print | Disqus
By Avi Gilburt
First published Sat Dec 6 for members of ElliottWaveTrader.net: For those that joined us in the Trading Room at Elliottwavetrader.net on Sunday night, November 30th, it was quite an exciting evening. As we all know, the metals had a sizeable move down, which was blamed on the vote in Switzerland. But, as we knew beforehand, the metals were set up for a decline. What I also warned about that night was that if the market did not maintain deep red overnight, we were likely going to kick off a strong rally into Monday. And, that is exactly what we saw.
The question Sunday night’s non-market hours decline now presents is whether it marked the final wave V down we were expecting in the long term bottoming process for the metals or not?
For those that have been with us since we began, you would remember that we opened the doors at Elliottwavetrader.net in 2011 by calling the top in gold. Since that time, we have had some very nice trades, both on the long side and, even more so, on the short side, during this 3+ year correction.
And, if you also remember, as we were coming into 2014 the rest of the market was so certain that the long term lows had been seen in the metals. Yet, we were equally certain that lower lows would be seen. I made it quite clear that I thought this would be the year we would be breaking the back of the metals bulls, which would then mark the long term bottom to this market. But, while we have broken the 2013 lows, as we expected, I still don’t think the bulls have been washed out just yet. Rather, I think we only completed the second to last bottom that will be struck in this long term correction.
As we also know, I was strongly suggesting to all those on the site that the lows we saw back in November were our first long term buying opportunities. My own personal investing plan has me buying the low of the 3rd wave of a c-wave for my first position within a long term investing plan. That means we have been net long for this run higher, and now looking to hedge those longs for the next drop to lower lows. It will be at the lower low we ideally still expect that we will be adding further long positions for what I believe will be the resumption of a very long term bull market in the metals. And, if you remember my update from a few weeks ago, we are expecting a ten-fold increase in mining stocks over the next 10-15 years, with the potential for a thirty-fold increase over the next 30 years.
I have also stated many times over the last few weeks that this is the first time in over 3+ years that I am truly comfortable with my positioning in the metals. Within a correction, the market whipsaws up and down, as it makes it way lower and lower, until the correction has completed. Until recently, I have not had enough of the correction completed to feel comfortable in taking a long-term long position in the metals and miners. Well, that is, until early November 2014, just as most others were stopping out of their long positions in the metals and miners.
Those in the Trading Room and my Live Video will recall that I noted in early November that I exited all my short-term short positions and went net-long the metals and miners within 24 hours before we struck the November bottom. And, I have no plans on selling those long positions, but, rather will hedge them for the next decline I still expect. I will then add to those long positions at our ultimate bottoming targets. So, yes, I am expecting and willing to take some pain (which is somewhat alleviated by hedging at resistance regions and at a wave 2 retrace in wave V down), but this is simply what my personal trading plan suggests I do, based upon my experience.
But, the question with which we are now faced is whether the lows we saw in silver last Sunday night were THE LOWS we have been looking for over the last 3 years. At this point in time, I have to lean towards the conclusion that they were not. And, this past week, I provided subscribers with a Market Update on Tuesday evening discussing my perspective on this question:
With the action we had on Sunday, it places a question mark in my mind as to whether the bottom has been struck in this long term correction in metals. Most specifically, on Sunday night, the silver market (SI) struck the top of the next lower blue box I had on my 144 minute chart, as I note in green on that chart.
What is most interesting is that the SI market, along with my daily YI chart shows the drop to the 14 level, and the top of the blue box, but the 144 minute chart does not have the same drop on the YI chart. And, clearly, the GLD did not have the similar drop, and the gold futures did not have anywhere near the same decline as silver. Furthermore, the miners do not look like they have completed their bottoming process either.
Moreover, the spike down, which occurred on a Sunday night, may have stopped out many futures longs, but it caused no pain to the cash market. I find it hard to believe that a final low would not take out more long positions in the cash market – which is where most of the weak hands reside - before reversing into the bull market phase. Furthermore, we have seen these types of spikes down in the futures in other markets, which have only been later confirmed by the cash markets dropping to the same levels at later times. So, I do remain skeptical of this past Sunday night’s move being the final 5th wave down in metals.
So, even though it does leave me with some questions, until proven otherwise, I am going to maintain the perspective that we are still in wave IV, with a lower low to be seen in the metals.
What may change my mind is if silver is able to rally through the resistance blue box noted on my 144 minute chart, which would then set us up to complete the larger degree green wave I on my daily chart. That would be a clear indication to me that the bottom is in, and the next multi-year bull market phase in the metals has begun. However, we are quite far from that point of confirmation.
Therefore, for now, I am going to continue to assume that we are still in wave IV – at least until we have a confirmed 5 wave move down to start wave V down – and will still be expecting lower lows to be struck.
To add to the unusual state of affairs in the metals market, the GDX had a strong spike down and reversal mid-week, which was akin to the one seen in gold and silver on Sunday night. But, like gold, it did not make a lower low, and can also be considered a b-wave bottom in a larger degree 4th wave. In fact, it bottomed EXACTLY where we would expect a bottom to be seen in a b-wave, wherein the (a) wave was exactly equal to the (c) within that b-wave.
So, with the greater weight of evidence having us maintain the course of looking for lower lows, we will await our initial 5 waves down for wave 1 of V, followed by a corrective 3 waves up in wave 2 of V as our signal that we are in the final run to lower lows. Until we see this cue, I have to maintain the perspective that this c-wave of wave IV can still push even higher to our secondary target zone in the metals and miners: silver - 17.80 region, GDX - 22 region, and GLD – 120 region.
As I noted repeatedly in the Trading Room at Elliottwavetrader.net, I know many of you are just itching for a short-term shorting opportunity for the final decline in metals. But, I think it is time I warn most about being too aggressive on the short side now. Remember, we are looking for a long term correction to complete. And, when that correction hits its final downside targets, it would not surprise me to see the exact replay of Sunday night, which, if you are not nimble, can turn very profitable short positions into losing positions very quickly.
If you read the tone of my perspective over the last several years, I have been very bearish for quite some time, until we hit the bottom of the drop in early November. Since that time, I have changed my overall perspective to one in which we should be looking towards the long-term upside, rather than the short-term downside. And, while I, too, will attempt a short-term short trade if the set up appropriately presents itself in a low-risk manner, I will not cry if the market drops without providing that low-risk entry. Rather, I will look at it as an opportunity to cash in my intermediate term puts on GLD, which were purchased when GLD was around 128, and also an opportunity to buy more long-term long positions.
As for downside targets, well, nothing has really changed for me in GLD. I have had a target of 95-105 for quite some time (with an over-reaction target as low as 75), and have no reason to change that expectation at this time. As far as silver, we may see as deep as the 12.75 level, with much depending on the size of the extensions we see on the way down. And, yes, I still believe those targets could be the buying opportunity of a lifetime.
See Avi’s charts illustrating the wave counts Below:
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.
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-- Published: Tuesday, 9 December 2014 | E-Mail | Print | Source: GoldSeek.com
