For those that have read my analysis over the years, you know that I view the word “hope” as one of the worst four-letter words in the English language. It is what kills the most investor accounts. So, I thought you may appreciate the title.
But, in all seriousness, we have been looking for a bottom in the metals market for some time, and all we seem to get are 3-wave rallies, followed by lower lows. This correction has now gone on for over 7 months, and has taken us deeper than I had initially expected.
Today, with the spike down to a lower low in GDX, followed by a reversal, we have the first potential bottoming structure I have seen for quite some time. As you can see from the attached 8-minute GDX chart, we have what seems to count well as a 5-wave structure off today’s low. Of course, this is VERY preliminary, and it is not anything I would be getting uber-bullish based upon just yet. Rather, I would need to see us hold the 31 region for a potential wave ii, followed by a full 5-wave rally at one higher degree to point us to 33+ in order for me to view us as having struck a solid long term bottom in the GDX.
The only issue is that GOLD’s extension lower still seems to be incomplete, and can still see that dreaded lower low. So, while there is some potential, please do not get too aggressive on the long side, as nothing has yet been confirmed.
Moreover, silver has done an amazing job of providing us with the a-b-c structure I outlined within my expectations a month ago. And, while a micro lower low can still be seen, as long as we hold the 25 region of support, we have a wonderful set up in place to begin our next rally higher. As you can see, not only do we have the a-b-c structure in place, we even have the MACD set up I love to see. But, again, I want to stress that it means we have to hold over 25 and begin an impulsive rally structure through 27.50 to provide assurance that we are on our way to much higher levels later this year. A break down below 25 at this point can open the door to the alternative count on the chart.
Now, this brings me to my biggest issue – GLD. While GDX is still well maintaining the positive divergence on the daily chart, the GLD has clearly broken that divergence. Normally, I would say that this is a problem. But, I want to note that there are times where the market does not get that divergence. And, that is when the market becomes so oversold that it has no choice but to begin a rally. In fact, we are currently even more oversold than we were back in March of 2020, which is absolutely quite incredible. In fact, I have to go all the way back to 2013 to find a time when the gold market was more oversold than where we are right now. So, I am going to assume that we are so oversold, that the next rally will begin our next bullish phase, especially if silver and GDX are able to continue higher.
So, while I am not going to be “hoping” for a rally in GDX and silver from here, I am going to watch those two charts very carefully over the coming days, as they can be the key to the next major rally in the metals market. But, this market is so stretched to the downside, I would imagine that it will be quite clear from the nature of a rally off the low that a major low has been struck. We still have not seen that type of reaction . . . yet.