Is It Time To Get Bullish Or Bearish Of Metals And Miners?

What has always fascinated me is how people react counter-intuitively when it comes to financial markets. 

In our everyday lives, we are so focused on finding the best prices for anything we want to purchase.  We expend a significant amount of effort into finding the “deal” on televisions, cars, jewelry, furniture, or anything else that carries a high price tag. 

Yet, that same perspective does not seem to carry over into the financial markets.  Rather, the higher the price moves in the financial markets, the more we want to buy it.  Hence, the higher gold seems to rally, the more bullish the market gets.  But, as I have been saying, it may still be premature to believe that the next phase of the long term bull market has begun.

When the GLD broke out over 112 this past week, it should have acted as a warning to those immediately bearish, which is exactly what I said in the Market Update I sent out to members at Elliottwavetrader.net on Wednesday.

With the move in gold/GLD, it has opened the door for the metals and miners to head higher still in what I am counting as a corrective rally.  Yet, I have to note that silver is clearly the weakest of the three attached charts, and it may be providing us the best topping signal of all.  Silver seems to be within an ending diagonal for this final move higher.  And within that ending diagonal, it looks like it needs at least one and, maybe even two, moves higher within the confines of its diagonal pattern.  A break down below the $15.60-15.80 support level is our first confirmation of the breakdown of this structure.  But, again, the upside pattern looks incomplete at this time.

Running a close second is the GDX, which also seems to be completing an ending diagonal.  I have attached an 8 minute chart to show that this is likely in the wave (iv) of the ending diagonal, which means we have one more spike higher into the 17.50-18 region to complete this diagonal.  Once the target region is struck, we should see a strong reaction to the downside which would be the initial signal that the market has reversed and is setting up for lower lows. And, as I have said repeatedly, an impulsive break down below the blue box on the daily chart is the signal that we are heading to lower lows.

Lastly, when it comes to GLD, I have noted the potential topping target within a blue box between 115-118GLD.  But, since GLD has been much stronger than the rest of the metals complex, I am still going to maintain the rest of the micro pattern in place in the event that it does complete a larger degree 5 waves off the recent lows.  Completing 5 waves up to signal a bottom being in place is not my expectation at this point in time, as I think it is more likely we will top within the target box, and begin the purple wave (5) to a lower low. 

For now, 110.70-112 is support for GLD.  As long as it holds that support, I expect it to test the 115-118 region next.  A move up to that next target region will also raise support up to 112-113.30.  And, a break down below that support region from our higher target will be our initial signal that we are heading down to conclude purple wave (5).  And, again, my current expectation is that we will turn down to lower lows from that target region.

As an aside, I have spoken about the potential that the metals begin to trade directionally in conjunction with the equity markets rather than opposite to them, as they have been since 2011.  So, I find it interesting that we seem to be quite close to a potential top in the equity markets along with a potential top in the metals.  And, if they all top together and begin to decline to their final lows, it is quite possible we can still see the lows for the metals complex within 2015.

See charts illustrating the wave counts on the GLD, GDX and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-20151020865.html

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Lastly, for those that are interested in trading this complex before the final lows have been confirmed, Larry White, who runs our Short-Term Trading service for miners, has earned total returns exceeding 150% for this year.  So, feel free to come trade with Larry, who will provide you with entries and exits for the 3X miner ETF’s.

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.