This past week, much was written about expectations regarding the ECB actions. The wide consensus was that the Euro was going to tank and the metals would tank with the Euro. However, that is not exactly what we saw.
Rather, the metals reacted exactly as we had expected. They pulled back in their 4th waves, held their respective support levels, and began an a-wave rally in their respective 5th wave. On Friday, they pulled back in what I am counting as a b-wave in their 5th waves, and I am looking for upside continuation in the coming week to complete their 5th waves.
In fact, the metals may be setting up to top by the time the Fed makes its announcements on Wednesday, and may begin their expected declines at that time. While many will blame the decline on the Fed, we will know better, especially if they complete their c-waves in their 5th waves of their respective ending diagonals.
And, what we know of ending diagonals is that, when they complete, they reverse quite violently, and quickly return to the region from which they began. In the GLD, that would be a fast drop to the 115 region, whereas in GDX it would mean a fast drop towards the 17 region. And, assuming this is only a corrective wave ii, then it would only be the (a) wave of wave ii, or even an a-wave within a larger (a) wave within wave ii. Much depends on how long the market expects this wave ii consolidation to take, and my estimation is that it can last into May or June.
When GLD and GDX have confirmed highs in place, I will be able to identify their pullback targets much better. For, now, I have placed estimations as to where I believe we will see their wave ii’s strike.
As for silver, it is still the problem child. However, there is now a discernable smaller degree i-ii structure in place in what may be the c-wave of its 5th wave in a leading diagonal off the lows. If that is the case, I am raising my target back to the 16.55-17 region for the completion of 5 waves off the low in silver. A break down below 15.17 will signal that we will not likely complete 5 waves off the lows, and that we will likely see a lower low in silver.
Now, if silver makes a higher high, it will shift probabilities a bit higher in favor of a potential very long term bottom being in place for the complex.
There is a further question I was asked this past week, the answer to which I would like to address. I was asked why I won’t sell any of my personal long term holdings in mining stocks if I am expecting us to top shortly. The reason is quite simple.
I have learned a lot in successfully trading/investing in metals and miners through the years. And one thing I have learned the hard way is that when the complex is in a strong trend, the surprises in the market come during retracements, as we often will not see as deep a retracement as we would normally see in other markets. And, when we consider this fact along with the fact that the upside extensions are often well beyond the standard extensions we see in other markets, it led me to my decision to maintain my core position and simply trade around it. It is for this reason I have decided to hedge my position using options, rather than selling my core position.
If I continue to see larger perspective questions, the answers to which I feel would benefit our investor base, I will strive to address them in these weekend write ups.
See charts illustrating the wave counts on the GDX, GLD and YI:
First published Sat Mar 12 for members.