Gold & Silver: Are You Feeling Bearish Yet?

If you were to travel back in a time machine to just one year ago, how many market calls would you find for gold to break $1,000? I will give you a hint:  It’s significantly less than the amount of bullish analysts left in the metals complex at this point in time.

Just one year ago, when I stood my ground and continually maintained that lower levels were still going to be seen, not only did I encounter disbelief, but, often, I experienced ridicule.

Now, one year later, how many market calls within the media are we seeing for targets of $350-700 gold?  But, can I say I am surprised?  Absolutely not.  This is simply the way herding and sentiment direct a market, as well as the analysts that cover the market.  And, analysts herd better than most.

I know some of you have seen me cite this before, but in 1996, Robert Olson published a study in the Financial Analysts Journal in which he studied the effects of herding upon “expert” fundamental analysts' predictions of corporate earnings. After studying 4000 corporate earnings estimates, he arrived at the following conclusion:

“Experts' earnings predictions exhibit positive bias and disappointing accuracy. These shortcomings are usually attributed to some combination of incomplete knowledge, incompetence, and/or misrepresentation."

Mr. Olson’s article suggests that "the human desire for consensus leads to herding behavior among earnings forecasters." with the herd always looking for the current trend to continue unabated and indefinitely.  But, those that have experience in the non-linear work of the stock market understand that the most bullish calls by these "expert fundamentalists" almost always come at the top of a market or stock.

Now that the market has broken down further than most believed just 3 months ago, the market has begun to shift from looking for the resumption of the bull market towards disbelief that a rally represents the resumption of the bull market.  While I do not yet have evidence that we have completed that shift, I don’t think we are far off. 

It is for this reason that I think we will likely see one more rally to test overall market bullishness, and the market will likely fail that test.  We call that test a 4^th wave rally.  The 5^th wave decline to lower lows which follows is what usually will turn the majority of the few remaining bulls into either “questioners" or “disbelievers."  When the market begins to rally off this final 5^th wave low, and most of the market will then question or not believe that the bull market is about to resume, that will represent the point at which we know, from a sentiment perspective, that the market has finally turned.  These will then be the “chasers" which will fuel the next major 3^rd wave higher.

Currently, I do not believe we are yet at the point that the remaining bulls have turned into “questioners" or “disbelievers.” Although most of the comments I am now seeing to my metals articles within the mainstream financial media are quite “questioning" or “disbelieving" the resumption of any bull market, from an anecdotal standpoint, I don’t believe enough of the bulls have yet been converted.  It is for this reason, along with my wave count, that I believe lower levels will still be seen.

But, my friends, when we see the mainstream media publishing market calls for $350 gold, and I even see comments in my articles about the potential to see sub-$100 gold, it tells me that the market is shifting towards the majority become much more bearish overall.  Again, the test will be the impending rally I foresee in the near term and how the market views that particular rally.

From a wave count perspective, both silver and GLD would look best as having completed or just about to complete their wave iv of 3 down, which means that the upcoming week will see the set up to lower lows to complete the 3^rd wave in this final 5^th wave of this multi-year c-wave pullback. While we can still see even higher levels to set up the wave v of 3 to lower lows, it is truly not necessary after the action we saw on Friday of the past week.  Currently, we have enough waves in place to support a completed wave iv flat pattern, which suggests that the next move will be to the downside and lower lows in the metals.

And, the GLD now presents the cleanest patterns of the 3 charts I follow.  Again, as I noted, we have enough waves in place now to suggest that a wave iv of (3) has completed on Friday as a “flat."   This means that as long as GLD does not break over the high seen on Friday, and then breaks the low seen on Friday, we should be looking for wave v of (3) to head down to the 101 region. In that event, silver should break the 14 level, and if GDX follows suit, it can drop as low as the 11.60 region (quite amazing when you think about it).   

But, should we see a move over the high seen on Friday in the GLD, it may put into question whether the 3^rd wave has in fact bottomed and the larger degree 4^th wave has begun.  Again, the pattern in the GLD suggests that to be the lesser likely scenario at this time if this is to complete this 5^th wave of the c-wave as a standard impulsive structure.  In fact, the market “can" rally as high as the .618 extension at the 108.50 region, and still maintain this impulsive downside structure.  So, for anyone brave enough to attempt an aggressive short position with the rubber band being this stretched this tightly to the downside, my suggestion would be to wait for the next micro 5 wave structure to the downside, which would likely retest Friday’s lows, before attempting the short side trade on the ensuing corrective bounce.

But, I must warn you again that this rubber band has been stretched farther than most expected just several months ago.  While we expected the market to drop down to this region, this extreme pessimism should soon spark the wave 4 rally which should take us at least a month’s time. But, as I have warned for years, until the pattern completes, do not be taken in by any renewed bullishness or calls for "the bottom being in."  We need a larger 4^th wave, followed by a 5^thwave to lower lows to convince me this bottom has been struck.  It has been a long haul these past few years, but we are very close to the end of the correction now.

EWT Miners Portfolio

As an update on the Elliottwavetrader.net miners portfolio, Larry, Zac, Garrett and I continue to prepare for the final bottom in the miners.  This past week, we reviewed the main stocks we believe will make the final cut as we get closer to the September roll out.  What we saw was quite interesting. 

There were a few stocks that have the potential of seeing their bottoms already being in place.  And, before this recent rally, Zac put several of them out in the Trading Room.  The ones of major note included LODE, which, after Zac’s posting this week, was up almost 65%, and PZG, which rallied 32% during this last rally in the mining sector.

We will also be highlighting those stocks which are in jeopardy of invalidating their longer term 1-2 set ups, as they will be posted and noted in the Trading Room by Larry and Zac at Elliottwavetrader.net within our StockWaves service.

Since we have been asked this question so many times, I want to clarify that you do not have to be a member of the main Trading Room at Elliottwavetrader.net to be a member of StockWaves, as it is a stand-alone service within our platform of 7 services.   But a price increase for those that are not currently members of StockWaves goes into effect on September 1, while those that are members before September 1 will see no increase, as they retain their current rate for the life of their membership, as is our general policy at EWT.  Just ask our Charter members who are still paying $30 a month for the service of our 4 StockWaves analysts, who cover all our members requested stocks in the US equity markets, along with our mining stocks analysis, and soon to be rolled out Managed Miners Portfolio.  

For those that may not know, we are creating our own miners portfolio within our StockWaves service at Elliottwavetrader.net, with the goal of outperforming the GDX.  We are analyzing all the stocks within the GDX, and taking out the ones that we feel will underperform, and replacing them with stocks we expect to outperform, once the bottom has been struck.  Furthermore, our “committee" will be regularly reviewing all the stocks within the portfolio every two weeks to assure that we maintain an outperforming portfolio.  

And, since my expectation is for bottoming to occur no earlier than September, we should have our list and allocation percentages completed by our roll out date of September 1.  And, we thank you, our membership, for constantly pushing us for this over the last year.  Ultimately, we expect this will place us the enviable position of having recommended exiting the market at the exact top in 2011, and attempting to time the publication of our managed miners’ portfolio right at the expected bottom.

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See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-YI-20150802784.html