Bearishness In Precious Metals Portends An Impending Bottom

Many people feel that the metals are too hard to trade.  Personally, I view them as much easier to trade since they are a rather pure sentiment trade. And, they have acted almost perfectly within our expectations of late.

On Friday, one of our members pointed out to me that the GLD fund has seen its largest withdrawal since late 2016.  And, as we now know, that was right before the metals bottomed and began a rally.  While we may still see some weakness over the coming week (which was also the case in 2016 after the withdrawal extreme), I think we are getting close to starting the next rally phase in this complex.

It also makes sense that many have now exited the market.  You see, a 3^rd wave often requires a certain amount of chasing by investors which causes the parabolic move higher we often see.  And, when I see large withdrawals from GLD or many people turning bearish of the metals complex, especially with the structure and technicals suggesting that we are bottoming out in a pullback/correction, it tells me to get ready for an impending rally as I look towards the calendar year 2020.

This past week, the metals reacted in an almost textbook manner.  Since the market provided us with this well telegraphed downside set up several weeks ago, it has reacted in a manner wholly consistent with the Fibonacci Pinball structure during this 5-wave impulsive c-wave structure. 

In fact, as we were striking the lows this past week for wave 3 in the 136 region in the GLD chart upon which I was mostly focused, I outlined that I expected that the market would see a rally up towards the 138.55-138.75 region, which was in the region of the standard .382 retracement target we often see for a 4^th wave.  The market proceeded to rally to a high of 138.90, from where it began to turn down.

So, I will continue to focus upon GLD, which has a rather clear structure in place.  As long as we remain below the high we struck this past week, my primary expectation is that we are setting up for a 5^th wave into our target box below.  For this to take hold, we will need to see a strong break below the 137 level, which will then reinforce my expectation for that 5^th wave lower. 

Alternatively, if the GLD is unable to break down below the 137 region, and holds over that support and rallies over the high struck this past week, it would be an initial indication that the GLD has likely already bottomed, and I will be looking to complete the alt 1 in blue noted on the chart.  Whether we see that lower low or not, once that blue wave 1 completes over the coming weeks, that will begin our preparations for the next major rally phase break out I see potentially taking us into 2020.

As far as silver is concerned, I have the same view on silver as I do on GLD.  As long as we remain below this past week’s high, I am expecting a 5^th wave lower, which will provide us with that strong buying signal with the positively divergent MACD I expect to see on that 5^th wave down.

As far as the individual stock charts, well, as we have seen in the past, there is nothing conclusive that we can glean as a blanket count applicable to the entire market.  What I am saying is that some of these individual miner charts have potentially bottomed already, whereas others seem to need that same lower low potential we are seeing as potential in the GLD and silver.  But, the one blanket statement we can make is that it seems the entire complex is attempting to bottom.

Lastly, once both gold and silver provide us with the larger degree 1^st waves rallies off a low within this region, we will begin to set up the aggressive long-side trade I expect to see in 2020.  Until then, I would use the current pullback as an opportunity to round out your overall long positioning. 

See chart on GLD illustrating Avi's wave counts.

Originally published on Sat Nov 16 for members of ElliottWaveTrader.net

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