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Metals Market Signaling Lower

 -- Published: Wednesday, 30 March 2016 | Print  | Disqus 

By: Avi Gilburt

First published Sat Mar 26 for members: While we were watching intently to see if the market was going to take advantage of a further bullish set up this past week, when it broke support, it made it clear that we have likely topped in wave i off the recent lows.  However, I have to note that silver has a very uncertain 5 wave structure off the lows, which is why I posted that I was shorting it on Tuesday, with a stop at 16.05. 

In fact, by the end of the week, we can even see a 5 wave structure off the recent highs in silver, which is suggestive of the potential that silver can very well see a lower low.  This means that silver may finally strike our long term ideal target at 12.75.

However, the GLD and the GDX do not have similar set ups which are quite as clear as we see in silver.  So, while I have noted that I see the probability that GLD and GDX have bottomed at approximately 65%, I cannot say that silver is greater than 50% at this time.

And, while I still expect to see lower levels in the metals and miners in the coming weeks, I think we are approaching a bounce, which “should” only be a corrective bounce, setting us up for further declines.

I want to take a moment to make something very clear. Approximately two weeks ago, I noted in our Trading Room that I was starting to hedge my long term positions in mining stocks, as it seemed as though we were topping in wave i off the lows.  And, last week, I noted that I would exit those hedges if the market was going to prove its more immediate bullish intent with a move through 22.25.  But, I also noted many times that I am unwilling to aggressively short the market.  So, I faced a very reasonable question as to why I shorted silver this past week.

The answer is quite simple.  After we have made a lot of money shorting the metals and miners for the last 4 years, our primary perspective maintains that most of the charts in this complex have seen a long term bottom in place, with a lower probability potential that one more lower low may be seen.  This means that we have moved from focusing on the downside in the market to the upside in the market.

I have also noted that I have no desire to sell any of the long term long positions, most of which were purchased at the end of 2015, and early 2016.  The main reason is that when the metals turn bullish, they do not always allow a solid pullback to re-enter the market.  For this reason, as part of my long term investing/trading plan in this complex, I decided to hedge my long term positions rather than selling those positions. 

So, part of my hedge for my longer term positions was taken this past week with a silver short, especially if it has the best potential for seeing a lower low.  And, should silver continue lower, then I will lower my stops.  This will place me in a position of either being stopped out at basically break even on this trade should silver turn up from here, or, more likely, being stopped out at much lower levels, or completely exiting these positions if silver strikes the 12.75 level.  But, ultimately, I am still net-long in the complex, and have no desire to be net short.  As I have stated this many times before over the last several months, the time for shorting the metals aggressively has come and gone, at least in my humble opinion.  And, even if we do see a lower low, we have to deploy our money based upon the higher probabilities, which strongly suggest one does not want to be net-short in this complex.

For now, my focus in this complex has shifted towards a wave ii in GLD and GDX, whereas I will be watching silver very carefully to see if we follow through to a lower low.  My expectation is that this wave ii “should” take at least several weeks, and can last several months.  But, by the May/June timeframe, I believe we can either have lower lows, such as in silver, or a completed wave ii, such as in GLD or GDX.

There is one more question I received this past week, which I would like to address.  I was asked how I can see the potential for silver to make a lower low, whereas the GLD and GDX may only see a higher low.  Doesn’t everything in this complex move together?  And, the simple answer to that question is “no,” everything does not move together, which is why I always warn that each chart should be analyzed on its own.  The best example of this perspective is if one looks at the charts for the metals in 2011.  We clearly see that silver topped in April, whereas gold took a Fibonacci 5 more months to complete its topping pattern.  So, it is entirely possible that gold may have already bottomed in December of 2015, whereas silver may take an additional Fibonacci 5 more months until it sees its bottom. 

In conclusion, I am now focusing on seeing lower levels in the metals complex, with the potential for lower lows still possible, but with much greater probability in silver.  Moreover, I will be quite vigilant in looking for an impulsive bullish set up off a low in the market, which would be our initial signal that the next bullish phase is about to begin.  In fact, I think we can see a “rally” begin within the next week or two, but, for now, expect it will only be corrective in nature.   However, should the expected “bounce” develop as something more bullish, I will certainly let everyone know in a mid-week Market Update.

See charts illustrating the wave counts on the GDX, GLD and YI - click to enlarge:

 Elliott Wave Chart
 Elliott Wave Chart
 Elliott Wave Chart

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, 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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