When the GLD dropped down off the October 25th high in a 5-wave structure, this provided us with the warning that a deeper c-wave can take hold. In fact, as we began the rally off that 5-wave decline, I began noting in our trading room that I was going to use GLD puts as a hedge to my overall metals positions, and would stop out should the market be able to break out over 143. And, as I also noted at the time, my target was down in the 133-135 region.
While the market hovered just below that 143 resistance for 3 days, it was unable to break out. That is when we began the c-wave decline for which the market was setting up. And, to be honest, this was one of the most telegraphed c-wave decline I have seen in the metals in quite some time.
But, as I noted in the title to my mid-week metals update, this action is not bearish. Rather, this is quite typical of the way corrections complete, as they scare out the bulls with a sharp c-wave decline. This is exactly what I think we are seeing in GLD.
And, with the slowing momentum of the decline that we saw on Friday, I believe we have a strong potential for bottoming in the complex in the coming week. But, the micro structure does not suggest the bottom has yet been struck. Rather, as you can see from the 8-minute GLD chart, I am still looking for waves 4 and 5 to complete before I believe this c-wave decline has completed.
For those that have been following our work for some time, you would also know that I rely upon the 144-minute silver chart for very strong bottoming indications. Most specifically, when silver provides us with an a-b-c downside structure, and we see positive divergences developing within the c-wave down, it has been an almost perfect indicator of a bottoming in the complex.
Thus far, the MACD on the 144-minute chart has dropped to levels at which we have seen bounces develop. In our case, my expectation is that the next bounce will likely be a 4th wave within this c-wave. The target for that 4th wave bounce would be within the 17.20-17.30 region. So, that is what I am looking for early in the coming week. Moreover, that bounce should help the MACD move up off the oversold levels where it now sits and set up that positive divergent low I expect when we see the 5th wave lower price low potentially sometime this coming week. It would take an impulsive rally through 17.30 to make me consider that silver may have bottomed before our normal signal is provided by this chart.
Now, with regard to all the other mining charts we follow, we seem to be quite clearly within a bottoming structure as well. The only question in my mind in all the regular charts I have been following is if GDXJ sees a lower low relative to the one struck in October or not. To be honest, I am genuinely not sure.
In all the charts we follow, I am expecting to see a bottom being struck over the coming week or two, and it can be a major bottoming in what I am counting as a second wave in most of the charts. So, should we see a 5-wave rally take us over the high struck at the end of October or early November (depending upon the chart), I will be moving into a more aggressive bullish mode.
But, overall, the main point of my update this weekend is that the market seems to be providing us with the potential for another major bottoming structure in the metals complex from which I think a new major rally phase may begin as we look into 2020. And, once we see a confirmed bottom which is followed by a 5-wave rally structure, I will begin to provide analysis of the levels through which we need to see to confirm the next rally will be a heart of a major 3rd wave as opposed to only a 5th wave in a larger wave (1), as shown as an alternative by the yellow count on the GDX chart. For now, ,my preference remains that it will be a major 3rd wave rally and will be treating it as such unless the market proves otherwise in the coming months.
At this time, I want to add one more point. For those that have been following my analysis over the last several years, you would know that I raised 20-30% of cash (depending upon the portfolio) when the stock market broke down below 2880SPX last year, and placed it into TLT when we were expecting a major bottoming in that chart. That earned 24% on that money into 2019 and it has been sitting in my cash account ever since. Over the coming week or two, I will be taking a portion of that money, and placing it into various mining stocks so as to make use of that free cash, at least until the market provides me with the type of pullback I want to see. So, I wanted to at least provide to you my own perspective as to what I am doing with some of my free cash.
Equities Contributor: Avi Gilburt
Source: Equities News