Where Did The Gold Bulls Go?

First published Sat Nov 12 for members of ElliottWaveTrader.net: I look all around me, and those that were bullish have now turned bearish, and those that were bearish are now drooling and foaming at the mouth.  What happened to all the bulls?

When everyone turns bearish, especially after an impulsive structure off the 2015 lows has completed, and starts looking to further lows in the complex, it means the time is approaching for a potential reversal.  One of our astute members at Elliottwavetrader.net put it best when he said “when fear of missing out turns into fear of being in, you know you're close to a bottom!”

In our Trading Room at Elliottwavetrader.net and in my live video sessions with our members, I have noted several times over the past weeks that the perfect bottoming set up would begin as the market recognizes a heads and shoulders pattern setting up in the GDX.  And, many this past week were pointing to this “perfect” pattern, which they view as setting us up for new lows in the complex.  In fact, it could be “too perfect” since the entire market seems to now be hyper-focused on how it is going to take us to lower lows.

But, my view was that this pattern could very well present the market with a head fake.  I was viewing a break of the neckline as providing more confidence to the shorts in the market, as they would likely then press their shorts.  However, I think there is a very strong potential for them to be seeing those shorts squeezed if we are to bottom in the coming week.  Those shorts can certainly provide us with the fuel to begin our 3^rd wave higher.  While there is clearly no certainty in this potential, I have seen this happen so many times, especially when the heads and shoulders patterns looks “too good,” as this one does.

Now, since we deal in probabilities and not certainties, I can always be wrong.   So, let me tell you what I need to see to believe I will be right.  And, the early part of the coming week can potentially be “the tell.”

Going back to the GDX, as we have each time, since it has the clearest price pattern to me, I would want to see the week begin with a bounce back to the 22.50 region as a 4^th wave bounce.  That would then set up our test of the 19.80 region in the middle of the week, which “should” complete this correction based upon our primary count.

There is one more technical point I want to make.  The MACD on the 144-minute silver chart has been one of the best indicators of tops and bottoms for us over the last year.  Right now, it has struck the level at which almost all the bottoms seen in 2016 have struck.  This also supports the perspective that the market needs to bounce early in the coming week.  But, it also supports my expectation for needing a 4th wave bounce followed by a 5th wave lower.  That 4th wave bounce would likely set up a positive divergence on the 5th wave down in the MACD on this chart.  So, again, this chart strongly suggests we need to see that bounce early in the coming week to set up the 5th wave in this c-wave to complete wave ii.

However, if the market does not bounce early this coming week, and continues lower instead, then it at least opens the door to the potential of lower lows in the market, which would be either a double bottom, or an undercut of the lows seen at the end of 2015, with the GDX potentially dropping as low as the 7 region. While it is not a certainty that this would occur, a continuation lower early in the coming week does increase the probability above what was 30% to date.  Yet, there is one more support in the 16.50-17 region which can still provide support for a second wave.  Ultimately, I think early in the coming week is going to be very important for the primary count of us finding a bottom in the very near term.

Lastly, Dr. Cari Bourette, from Marketmood.net, also sees gold bottoming out in the coming week, based upon her algorithmic studies of market sentiment.  As an aside, Dr. Bourette’s work supported our own conclusions that the stock market was going to bottom last week.

See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-Silver-YI-201611131411.html .