Things To Consider As We Near The End Of The 4+ Year Correction

As we approach a long term bottoming in the metals and miners complex, I have received many questions about how to best prepare for the impending transition back into a bull market.  So, there are a few things I want to address.

First, I am constantly asked which vehicles are advised for most who want to profit from the next bull market in metals and miners.  My answer to that question has been and always will be physical metals and mining stocks.  Moreover, I have done all I can to discourage investors from using most metals ETF’s (such as GLD or SLV) as their long term investing vehicle of choice. 

Being a lawyer by training, I have reviewed the prospectus of some of these vehicles, and have provided some general perspectives as to why they should not be used for those who are interested in investing in metals for the primary purpose of safety, insurance or as a store of wealth.  In fact, the last half of a webinar I conducted a year ago goes into detail as to why I believe most investors should maintain their distance from these investment vehicles, and I have linked that section of the video here:

https://www.elliottwavetrader.net/videos.php?v=1445

Second, I have been questioned many a time about the potential for an investors’ gold to be confiscated by the government.  To answer this question, I will direct you to an article I wrote last year on Seeking Alpha which addresses this issue, along with addressing the issue of whether one should store their gold in their bank, all based upon history.  http://seekingalpha.com/article/2535235-can-your-gold-be-confiscated

Lastly, I am often asked the question about using options on underlying ETF’s to “trade” off the bottom of the metals market.  While this can be quite profitable, there are a number of issues I want to point out to those who are considering this aggressive strategy. 

First, as noted above, the underlying issues with the ETF’s themselves makes owning options on those ETF’s infinitely more risky.  Second, you really need to get the timing right on the bottoming of this market.  We have seen the market delaying this bottoming for well over a year beyond the point where the pattern could have completed, so this adds another highly risky dimension to trading the bottom using an options strategy before we have confirmation that the bottom has been struck.  Once we have confirmation that the bottom has been struck, then you can chose to  “trade” further upside using an options strategy on an underlying ETF, as long as you recognize the risks involved in the underlying ETF, as I have outlined in my webinar.  For this reason, I have advised to all those that are considering trading the market in this manner to not exceed 2% of the capital they are designating for their entire metals investment for these options strategies on these ETF’s.  There is a real potential you can lose your entire investment in this options strategy overnight due to the inherent risks associated with the underlying ETF’s.

As far as the charts that we follow, I want to start out by noting that as we moved into the end of the calendar year for the prior two years, the market has had a set up to complete this correction each time.  However, each time, the market rallied quite strongly to push the final bottoming potential for the market out to the next year.  The question now is if this year will be any different.

In the most immediate sense, the metals and miners look like they are consolidating in a 4^th wave on their way to dropping down to complete their long term correction.  But, as I said, we have been here before.  And, until we see those lower lows and those lower targets struck, the market can still prolong this painful long term correction with another c-wave rally to a higher high relative to last month’s high, as I have noted in my alternative count on the charts. 

But, remember, this is simply the alternative at this point in time.  Yet, I do want to note that if this alternative does play out, there are a number of miners that we have been following in our Miners Portfolio at Elliottwavetrader.net which will likely confirm their long term bottoms being in place, as they will likely complete a larger 5 wave structure off the lows.  So, while the complex may still have lower lows to play out, in the event the alternative pattern takes hold, we will likely have confirmed a number of bottoms in certain individual miners.

As far as the primary counts, I am maintaining that each of the charts are either in the 4^th wave of their 3^rd waves down, or simply consolidating in their 4^th waves in their final 5^th waves to the lower lows. On the GLD, I have noted the 2 sets of 4’s and 5’s which still need to be completed, whereas the GDX suggests it only needs a 5^th wave to a lower low.  Resistance for GDX resides between the 14.10-14.65 region, which represents the .236-.382 retracement of wave iii down.  Resistance for GLD resides between 104.75-106.50.  And, the resistance for silver resides between 14.50-14.75.   

Again, as long as these resistance levels are held, then I can see us heading down to make our final lows over the next several weeks.  However, should resistance be taken out, it opens the door to yet another year end delay in the final bottoming of this complex, just as we have seen over the last several years.

Lastly, I want to remind everyone that we will be hosting a webinar on Wednesday, November 18^th on our site, where I will be interviewing Doug Eberhardt, a wholesaler of physical gold and silver bullion and author of the book, "Buy Gold and Silver Safely.”   Register for free at https://attendee.gotowebinar.com/register/3632582279484154626 — and gain a fresh perspective on the precious metals market in this live Q&A, in which attendees are also invited to pose their questions to Doug.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-20151115941.html .

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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.