-- Published: Wednesday, 10 February 2016 | Print | Disqus
By Avi Gilburt
First published Sat Feb 6 for members: Back in 2011, the market was eagerly waiting for gold to exceed the $2,000 level. Everyone viewed it as a certainty at the time. Yet, we suggested that it was time to sell once we struck the $1,915 level, with the market topping out only 6 dollars higher.
Now in 2016, the great majority of the market was equally certain that gold was going to drop below $1,000. However, our BUY box on our chart – which originally was provided to members several years ago, and has remained quite consistent - was prominently presented just a bit above the $1,000 mark, with the GDX BUY region just below the 13 level, and silver's beginning at 14. And, after a 4+ year correction, our BUY boxes have all been struck.
This past week, we experienced the strongest rally in the miners that has been seen in many years. And, some are questioning if this represents the initial rally off the long term bottom, while many others view this as yet another corrective rally. My personal perspective is that this is the best potential we have seen for a true long term bottom since we struck our highs over 4 years ago.
With regard to the GDX, we have been noting for a few weeks that the bottom struck within our long term BUY box has been struck with a completed bottoming 5-wave structure at the 12.40 level. However, we also noted that in order to confirm a long term bottom being in place, not only must we complete the pattern to the downside, we must also complete an initial 5 wave structure off the lows.
Thus far, we have a completed bottoming pattern in place, and seem to be in the heart of the 3rd wave off that bottoming pattern. Ideally, all 5 waves should be taking us towards the 21/22 region, which is the path we have clearly laid out on our chart for quite a long time. Moreover, we needed certain resistance levels to be broken to dispel the notion of an extended 5th wave lower. This past week, with the last minute move through the 17.04 level on Friday, all those levels have now been broken.
The price action seen on Friday has opened the door for the market to continue higher to complete a larger degree 5 wave move off the 12.40 level, and take us up towards the 21/22 region target to complete wave I off the lows. The only action which would make me reconsider a bottom being in place for GDX is a break down below 15.50 early in the coming week.
But, to be completely honest, I am not as convinced about gold and silver YET. First, the bottoming in the diagonal of GLD has not been at all typical, which has been outlined many times before in my prior analysis. Moreover, the move off the recent lows did not begin with a clearly impulsive rally. In the past, these factors were enough for me to confidently state that the final lows have not been struck.
However, with the action seen in the miners of late, along with the metals having struck our long term BUY targets for this correction, and, now, having taken out our initial resistance region on the GLD, I cannot be anywhere near as confident that lower lows will certainly be seen. In fact, I have a “no man's land” designation for where the GLD currently resides. And, should the market be able to move through that “no man's land,” and take out the resistance at 118, it would likely pave the way for the GLD to complete a 5 wave structure (off the recent lows in our BUY box) in the 122-125 region we had targeted for the top of wave I for quite some time.
And, lastly, we move to the problem child – silver. The only way to consider a bottom having been struck in silver is for it to have completed with a truncated ending diagonal. Clearly, this is not the most reliable of bottoming patterns. Moreover, we still have strong resistance overhead which can turn us down for a final wave to a lower low. However, should silver be able to break through the 16 level, and take us up in 5 waves towards the 18-22 region to complete the green wave I (which has also been on our chart for quite some time), then it will be quite clear that silver has transitioned back into a bull market phase.
To date, every time the market has rallied off a bottom, I have been quite confident that lower lows were going to be seen. And, for many years, I have been correct, even though most of the market disagreed at the time. However, this is truly the first time in many years where I am going to strongly entertain that the bottom has been struck, especially since we have struck the targets we set out years ago.
As I have said many times over the last half year, I have had no desire to be shorting this market aggressively, since we are coming to the end of this 4+ year correction. The time for shorting this market has come and gone, and I have even less desire to short this market at this time. Rather, I am now going to give the bull market the opportunity to re-assert itself, and will continue to ride the long positions purchased in our BUY BUY BUY boxes, Now is the time to sit back, and allow the market to prove if we have transitioned back into the bull market, which will then have us apply different “rules,” as to how we react to market action.
Along those lines, I want to re-post something I sent out as an alert this past week in preparation for the resumption of the long-term bull market:
I see some of you attempting to look at the overbought nature of the technicals on the miners and metals and view it as simply another topping pattern just like all the others we have had for years.
The issue that many overlook is that we apply those technicals differently during bull moves vs. bear moves. You see, if the market has truly bottomed and transitioned into a bull phase, then overbought indicators simply remain overbought as the market continues higher in a 3rd wave. This is when technicals imbed and why so many are caught off guard when a market transitions from bear to bull.
So, do not assume an overbought indication in the techncials will mark a top this time, and maintain an open mind to the potential that the market may have finally transitioned. Due to the potential of a bottoming pattern in place in GDX, we now need more than just an overbought indication on the technicals to confirm a top to a corrective rally. We also need to see a Fibonacci Pinball support level broken by an impulsive structure to the downside.
In conclusion, this post is simply to note that indicators should be used differently during bull phases and bear phases, and one has to be able to understand how to use them appropriately during the different phases of a market move.
See charts illustrating the wave counts on the $HUI, GLD, GDX, and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201602071109.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, 10 February 2016 | E-Mail | Print | Source: GoldSeek.com
