-- Published: Wednesday, 24 February 2016 | Print | Disqus
By Avi Gilburt
First published Sat Feb 20 for members: Each time I look around the web, I see many calling a certain bottom in metals yet again. But, these same people have called so many certain bottoms over the years, I have lost count. So, how about if we speak a little more realistically about what is happening in the market, as we still need to look for confirmation that the bull market has returned.
Right now, we do not have final confirmation that the bull market has returned. While the probabilities have certainly increased that the bottom is in, I cannot make that claim with a high level of probability. So, rather than provide yet another discussion about the bottom being in, I thought it would be worthwhile to discuss what the probabilities are that the bottom is in, and what we will need to see to feel very confident that the long term bull market has returned in the metals and miners. So, this week, I will go through all the factors I am taking into account in my determination, which will hopefully provide realistic guidance for your positioning in this market.
But, before we begin discussing where we are in market, I would like to spend a moment to discuss positioning for the bull market. Even though we have discussed this many times over the last year in our Trading Room, I think it is worthwhile to go through it one more time.
For those of you that read my analysis when we first opened our doors a little over 4 years ago, you may remember that we had a target top of $1,915 for gold. But, I was also noting that I was personally going to be selling once the market moved over the $1,900 region, as we were not exactly certain where the market was going to turn, as it may even come up short of the ideal target. And, as we now know, the market exceeded my target by $6.
Now, fast forward four years later, and all our members had our “BUY, BUY, BUY” boxes prominently displayed on all our metals charts week after week for quite some time. And, again, while there was potential for the market to drop a bit lower than our ideal target zone, I have suggested that this region represented a point where we have a high probability long-term bottoming point for the metals and miners. But, as we deal with non-linear markets, this represented a high probability region and not a guaranteed region. And, even in the event that the market drops one more time, I still believe the same.
Again, as I said a few weeks ago:
“Rather, the appropriate manner in which one should be viewing the market is knowing when to sell and then knowing when to buy back what you sold. This is what everyone knows as “buying low, and selling high.” This is the ultimate goal for investing. But, take note that it does not say one needs to be buying “THE” low, and selling “THE” high in order to be an accomplished and profitable investor. So, this was the goal of our “BUY” box. Certainly, as I noted over the years, the market could see lower lows in an overly-emotional downside reaction. However, the box presented a region at which there was a high probability the market could bottom, and that is why it was a suggested long term buying region.”
When we consider the bigger picture for long term investors, I am pretty sure that the “BUY” box will likely be seen as “buying low” over the long haul, after we “sold high” in 2011.
But, the immediate question upon everyone's mind is whether the bottom is certainly in for this complex. As I noted above, many have made definitive statements that the bottom is certainly in, and for many of them, their latest “certain” bottom call now places the tally of their bottom calls into the double digits over the last 4 years. So, rather than foolishly join perpetual bottom callers who will eventually be right, I am going to explain to you how I look at the market, and what it takes to confirm a long term bottom in this market for me.
Before I go into my analysis, I want you to understand that whether we have a confirmed bottom or not in place, it should not make a difference as to when long term buyers should have moved back into this market. The only reason a confirmed bottom makes a difference, at least to me, is for trading the market aggressively to the upside. You see, whether we have a confirmed bottom or not, I believe that the “BUY” boxes on our charts have always been a good point at which long term investors should have moved back into this market after we got out in 2011. And, if we get another opportunity to drop down into that region, then we should be buying more.
The confirmation of a bottom being in place will change our mindset as to how we trade the market. Once a bottom is confirmed, we can become much more aggressive in trading the upside, as well as adding to the long term positions we purchased below. Moreover, for those that invest or trade with leverage, one should not be considering using leverage on the long side until a confirmed bottom is in place. So, ultimately, the confirmation of a long term bottom simply guides your decision making as to whether you become aggressive with the market upside or not.
Ultimately, what I am saying is that this is a two stage decision process. As long term investors, we begin “buying low” within our long term buying target region. But, for those who want to be aggressive with their trading and investing (taking a full position or using leverage), one needs to wait for the confirmation process to affirm a long term bottom is in place.
So, let's move on to the “confirmation process.”
From an Elliott Wave perspective, we look for several qualifications to determine a long term correction has completed, and a bull market has resumed.
First, we need to see the decline complete a full 5 wave structure for the c-wave of the correction.
Second, we need to see this corrective structure complete into a target region, as calculation via Fibonacci mathematics.
Third, we need to see a 5 wave rally off the bottoming region low.
Fourth, after the 5 wave rally has completed, we need to see a corrective 3 wave pullback into a target region as calculated by Fibonacci mathematics.
Fifth, to place us very strongly back into the bull market, the market must then rally over the high of the initial 5 wave structure off the bottom. This will suggest that the bull market has begun, at least from a high probability perspective.
As we stand today, we have a potential completed 5 waves down for the c-wave in the GDX, but silver and gold are much less clear. But, all products have struck their long term bottoming targets. Yet, we still have not completed a clearly full 5 waves up off the lows.
Based upon our “confirmation process,” I would suggest we have an estimated 55-60% probability that the bottom could be in. Should we complete a 5 wave structure off the lows in the coming week or two, I would suggest that the percentage would increase to 65-75%.
As for the smaller degree analysis, I sent out a mid-week alert to members slightly modifying the support regions for a 4th wave in GLD (112.50) and silver (14.80). Other than that, my primary count still maintains us being in a 4th wave off the recent lows, which still likely need a c-wave down to complete. Should the market rally over recent highs made in all these charts, then we are likely already in the 5th wave higher, and the probabilities begin to shift a little higher that a long term bottom has been struck.
Alternatively, should all support regions be broken in the coming week or two, it moves the probabilities in the direction of a lower low being seen.
Once one begins to appropriately think about markets from the perspective of probabilities, one will learn that all the perpetual bottom callers have only wasted our time and focus. We need to approach the market not from an immature perspective of black or white, as too many have done, but from an understanding that we are dealing with a non-linear environment, which means our decision making process must turn towards a more probabilistic approach.
See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201602211123.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, 24 February 2016 | E-Mail | Print | Source: GoldSeek.com
