Gold And Silver: Dealing With Market Inconsistencies

Sometimes, I like to look around the market to see what the mainstream analysts are saying about the metals world.  Sadly, almost all, especially at my old stomping ground at Seeking Alpha, have had a strongly bullish bias, accompanied by low levels of accuracy.  And, as I noted last weekend, at each rally over the last few years, they have uniformly, and incorrectly, believed the final low was in place.

But, when I looked this past weekend, there was no longer a consensus, as the perspectives were quite varied. It seems we have transitioned from confidence in the bull market to many beginning to lose confidence and looking lower.  One author even published an article claiming that timing gold’s movement is a fool’s errand.  Now, don’t I foolish.  But, seriously, if one does not understand how metals move, then, of course, it is foolish to attempt to time the market.   But, those of us that do understand how the metals move have done quite well over the last 4 years in timing the market.

Getting back to how most analysts and market participants view this market, we are now seeing evidence of exactly what I said to expect last week, as we head to the final lows: 

You see, at the market highs, everyone was convinced that higher levels would be seen, yet the market continued to move lower in the face of such optimism.  But, now, as we have dropped lower and lower in this 4 year correction, less and less are going to believe that a bottom has been struck, as most will believe that even lower levels will be seen.  And by the time the bottom is actually struck, most will think that any rally will only lead to lower lows.  This is that type of market sentiment which will leave most behind once the final bottom has been struck, and then make them chase the market much higher.

Unfortunately, the human desire for consensus leads to herding, especially among forecasters. In fact, in a study of 4000 predictions conducted by Robert Olson in 1996, he noted that “predictions exhibit positive bias and disappointing accuracy.  These shortcomings are usually attributed to some combination of incomplete knowledge, incompetence, and/or misrepresentation.”

By now, I think everyone that has followed us within this industry has come to the realization that we look at this market differently than the rest, as we clearly do not follow the herd.  We have not bought into the “fundamental” drivel spewed by the rest of the market about international demand, quantitative easing, the Middle East or Crimea, or any other news event in the headlines. Rather, we have always viewed markets as being driven by sentiment, and not news or fundamentals, and have tracked that sentiment using our Elliott Wave analysis, guided by our own Fibonacci Pinball methodology, rather profitably.

Last weekend, I noted that I may be joining the FOMO (“fear of missing out”) crowd at the next lower lows in the metals and miners.  But, with only the GDX and silver making lower lows, I sent out a Market Update during the week noting that I am somewhat postponing my FOMO status to the next lower lows.  However, I did note that I used the opportunity of the recent drop in the GDX and silver to add to my long term mining stocks which we believe may have seen their final bottoms, and some physical silver, as I had pre-set orders which triggered at the top of my target box at $14. 

As I have said many times in the past, we set our main “buying” target 3 years ago at the $12.75-$14 region, at which time I had planned to be buying into silver, even though the potential exists that silver can drop down to as low as the 11 region.  If one is really serious about the long term prospects in this market, then there is no question that buying silver at $14 and lower is buying at bargain basement prices, which is akin to when I began buying years ago in the $9 region.

The main reason I am postponing my FOMO status is because gold did not make a lower low this past week.  It tells me that there are still more machinations to be seen before gold is ready to plummet.  And, with silver making a lower low, it is only a matter of time before gold follows suit.

As for the patterns, it seems that silver is in the final run to lower lows.  This initial drop seems to be an a-wave of the final 5^th wave in this ending diagonal.  It also seems as though GLD may have a similar pattern, as you can see from the attached GLD chart.

However, the one additional note I made on GLD this past week in the mid-week Market Update to members was the addition of an alternative count in GLD.  For now, the 110-111GLD region is the main region of resistance to keep pressure to the downside on GLD.  However, should the market move strongly through that region, and take out the last high, then we are going to be targeting the 116-118 region for the top of a larger degree (b) wave in GLD in the blue count, which will then set up the run to lower lows.  So, I will be taking this one step at a time, due to the amorphous nature of the current pattern.

In the GDX, the wave iv of 3 topped last week as per our last weekend update, and we dropped towards our lower target for wave v of 3. And, as I noted in our Trading Room on Wednesday, even though the market may still attempt one more lower low towards the 12.30 region in wave v of 3, I was cashing in another 25% of my core short positions. Should the market provide another safe entry to short for another lower low, I will note what I see in our Trading Room.  But, as I noted on Friday, I am fast losing my appetite for playing the short side in the miners.  Rather, I think gold may be the better upcoming short trade.  So, my expectation is to see a 4^th wave in GDX begin soon, which can take us back up to the 16-18 region to set us up for a run to the final lows.

Lastly, for all of those asking about my long term positioning in this complex, at this point in time, I maintain a core long term position in mining stocks (some of which we believe may have bottomed), as well as a core position in silver.  I fully expect to be able to add to those positions at lower lows, but use this core position to ride corrective waves back up, and will then look to hedge those positions near the conclusions of those corrective waves.  At the next drop to lower lows in GOLD, I fully intend to have deployed 85-90% of the capital I have allocated to this complex.  That will be my FOMO moment after 4 years within this correction.

See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-20150830806.html

Speaking of 4 years … As we prepare to celebrate our 4th anniversary at ElliottWaveTrader.net, and I look back upon the last 4 years, it truly astounds me as to how we have grown. 

For those of you that were here in the first year or two, you may remember that we rolled out the site with only one analyst – and that was me. I provided, to the best of my ability, analysis in the main Trading Room covering the S&P500, gold, silver, USO and the US Dollar. 

As we approach our 4th anniversary in the fall, we are proud to note that we have not increased our price for that same analysis of the S&P500, gold, silver, USO and the US Dollar. All the thousands of our members still pay the same $99 a month, but have benefited from a significant increase in the breadth of analysis they now get when they enter our main Trading Room.

In fact, our membership has grown to include not just those who are new to trading and looking to learn in real time from our analysts, but it includes hundreds of professional traders and large money managers from all over the world, who post their own analysis and perspectives based upon their significant collective professional experiences. 

While we have novices in our Trading Room who are just starting out their careers as traders and investors, we also have many members with over 30 years of experience, all of whom work together and recognize that a rising tide raises all ships. It has truly grown to be in a class of its own regarding information sharing as a trading community, with a sense of camaraderie that many have even noted is akin to a sense of family. 

But, what has truly changed in the last 4 years is that we now have 10 dedicated analysts -- rather than just one -- posting analysis on much more than what was initially promised to members as they came in the door. For the exact same fee, one now also receives analysis on the Dow, the Russell, the Nasdaq, crude oil, natural gas, copper, many various consumable commodities, bonds, the Euro, in addition to open interest analysis, yields analysis, and internals/breadth analysis, as related to the equity markets. 

During the past four years, we have seen tremendous talents emerge in our Trading Room, including Zac, Arkady, Garrett, Xenia, Harry, Larry, Victor, Mike and Princely. As we have significantly grown in membership, we have clearly grown in breadth and scope of analysis in our main Trading Room, along with the additional services we offer. 

We now offer StockWaves (with 4 analysts covering all the stocks in the US indices, including mining stocks), World Markets, Options, Short Term Miners Trading (which has provided total documented returns of 114.13% on swing and day trading calls in 2015), Market Trading Signals (which has provided total documented returns of 27% on swing trading calls since it began in May), and our newly expanded Forex service. We are soon rolling out our EWT Miners Portfolio, as well as a cycle and timing service. 

So, after almost 4 years since we began, Rich and I feel we have become the pre-eminent trading room on the Internet, providing significant value to our thousands of members. And, the tremendous feedback we have received from our members, along with our significant growth, seems to support our feelings. 

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See Avi’s charts illustrating the wave counts on the metals at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-20150830806.html

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.