It’s Not Easy Being Purple

No matter how many times I warn people about how evil a larger degree b-wave can get, I still see people getting caught over-trading during these environments.  And, it is usually because they have not been through many b-waves before and they believe that the death by a thousand cuts (that is typical of trading b-waves) simply will not apply to them.  

And, while Kermit the frog is famous for proclaiming “it’s not easy being green,” I am sure Barney would proclaim similarly, “it aint easy being purple either.”  And, that certainly applies in our current situation, as the evil potential within this market still will not die.  

In the weekend update, I outlined that if GDX were to drop straight down towards the 81.80 region, this could bring back the purple count.  You see, if this really was a 1-2, i-ii downside set up developing, then it is VERY rare to see wave i of 3 exceeding the .764 extension of waves 1-2.   With us directly approaching the 1.00 extension in the 81.80 region before seeing a wave ii bounce, it makes it more likely that this is a c-wave rather than a wave i of 3.  

With this being the case, we have to now be quite cognizant that, if the market begins a 5-wave rally off this support region, it significantly increases the probability that the purple count is not yet dead, and is likely taking hold to take us back up to the 106.50-117 region to complete a complex b-wave structure.

So, when I go back and look at gold with this insight, I recognize that we have just dropped to the .764 extension and this can be either wave 1 of the bigger c-wave down, or it can be a (c) wave in the purple b-wave still.  Therefore, gold is not making as clear a statement as GDX may be at this time.

In moving to silver, the same structure for the purple count is a bit creative, as it would entail an expanded (b) wave structure, with us now completing the c-wave of that (b) wave.   So, as with gold, it is not as clear that the purple count can make a comeback when looking at silver.  

So, as we are seemingly completing 5 waves down in this most recent decline (as either a c-wave or a wave 1), I think it is reasonable to expect at least a bounce.  And, if that bounce remains corrective, then we will continue looking lower in the coming days after the wave 2 bounce completes.   However, if that rally is a clear impulsive 5-wave structure, then we will call this “the return of evil the purple trader-eaters.”

For those that are very aggressive, you can even choose to trade the long side, as both counts suggest a bounce is more likely than not. And, if it is impulsive, you can hold until we get the bigger b-wave completed at much higher levels.  But, if it is clearly corrective, you can take your profit and move on.

But, despite what I just said, I am again going to warn about trading too aggressively in this environment.  It comes with significantly more risk.  In this case, the risk is that this simply continues lower in a more direct fashion, even though I am not seeing that as the most likely scenario right now.  But, that is what stops are for.

I sincerely hope that this has been a lesson to you all about how important it is to recognize the environment in which you are trading.  And, this is something that only Elliott Wave analysis, coupled with our Fibonacci Pinball process, can identify.  

The market is now telling us that it is not likely that this correction has run its course, and we still could see a very strong rally in a c-wave, which will likely make many believe this bear structure is done.  But, the overall context is telling that the c-wave rally (if we get it in the purple count) is likely only a trap, which will then set us up for a small crash-like c-wave decline to come thereafter, which will likely washout bullish sentiment and provide us with our next higher probability buying opportunity.