-- Published: Wednesday, 28 October 2015 | Print | Disqus
By Avi Gilburt
First published Sat Oct 24 for members: I am amazed at how investors have such short memories. Yet, it probably explains why the the public makes the same mistakes over and over when it comes to investing.
When QE3 was announced in 2012, everyone cried in unison “gold is going to the moon.” However, we, cried “short it like there is no tomorrow.” And, now, as silver has lost as much as 75% of its value, we clearly understand that QE did not have the effect the market believed it would have on metals.
Now, 3 years later, the EU is talking about expanding its quantitative easing, and, amazingly, we are hearing renewed cries of “gold is going to the moon.” I literally sit here dumbfounded. But, while I am not yet ready to suggest shorting gold aggressively, I am still not in the crowded camp that maintains that gold has certainly bottomed. So, we may yet see another event where QE preceded a large drop in the metals, while investors are confidently looking the wrong way. Therefore, we may be quite close to that decline commencing.
Also, I would like to digress to make one further point about this market. In a recent interview I did, I was asked about how the dollar will affect my perspective of the metals. My answer was that the dollar is a different chart and has to be analyzed on its own, just like the metals have to be analyzed on their own. We have seen times where the metals will move opposite the dollar, and have seen times when the metals have moved with the dollar. So, while I have been strongly suggesting that the dollar is about to rally – which it did this past week – the metals have held support and still have the potential for a higher high before they drop to their lower lows.
I also want to update you about our miners’ portfolio. At this point in time, we have approximately 30% of our funds deployed (since we only see an estimated 30% probability that the market has bottomed), which we commenced exactly at the bottom of the GDX in September of 2015. Right now, we are waiting for a confirmation that a bottom is in for the complex, or for a lower low, in order to deploy the remaining funds. But, we have clearly noticed that a number of stocks could have potentially formed a long term bottom, with Seabridge Gold (SA) being one of the examples of our holdings since September, as we are up over 50% in our position since that time.
So, let’s move into our analysis of the metals and miners. As far as the GDX, silver and GLD are concerned, much of the analysis I presented in our mid-week update is still very much applicable.
As for the GDX, last week, I was still looking for one more possible rally to take hold towards the 17.50-18 region before we commence the decline to lower lows. And, in a mid-week Market Update sent to all members, I modified the support level to 15.10 – which I am now moving up to 15.25, which must be broken before the market makes it clear that this higher target will not likely be struck before a lower low is seen.
In silver, we are still just barely holding the support region we noted over last weekend. I have added a few trend channels so we can see what I think will likely occur. At this point in time, the market is testing support. A break of 15.60 can signal that a top “could” be in, but we will have to break the trend channel to confirm that – which means a break of 15.30.
Lastly, the GLD is still holding within our support region over 110.70. Now, since the next drop to lower lows would be a 3 wave event, I cannot necessarily be looking for a 5 wave structure off the highs to tell me we are heading to lower lows – as it certainly can and most likely will start with a 3-wave (a) wave. Therefore, I am going to need to see a break down below support to suggest that the market is heading down rather than looking for an impulsive break down below support.
While a breakdown of support can still present us with a 4th wave in an ending diagonal for this c-wave up, under all circumstances a breakdown of support tells us upside is very limited, and the downside will begin in the near term, even if a higher high is made in an ending diagonal. So, for now, I am still looking higher towards a minimal target of 115.37 if we hold 110.70. But, if we break 110.70, and follow through below 109.90, then I am going to be looking down, with an alternative count being that one more higher high can be seen in the 5th wave of an ending diagonal within the c-wave of wave (4).
As an aside, I have spoken about the potential that the metals begin to trade directionally in conjunction with the equity markets rather than opposite to them, as they have been since 2011. And, both markets have the potential to still push higher in the upcoming week, and then turn down hard from there. If they all top together in the upcoming week and begin to decline to their final lows, it is quite possible we can still see the lows for the metals complex within 2015 in rather quick fashion, which would not be typical of the action we have seen over the last year or two, but the potential still does exist.
Lastly, for those that are interested in trading this complex before the final lows have been confirmed, Larry White, who runs our Short-Term Trading service for miners, has earned total returns exceeding 160% for this year, as he tacked on another 8% return this past week. So, feel free to come trade with Larry, who will provide you with entries and exits for the 3X miner ETF’s.
See charts illustrating the wave counts on the GLD, GDX and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-20151025883.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.
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-- Published: Wednesday, 28 October 2015 | E-Mail | Print | Source: GoldSeek.com