While I have clearly not been bearish the metals complex, I have been having a hard time identifying a solid bottoming in the complex in a definitive manner.
Specifically, I have been looking at my 144-minute chart of silver and not seeing the positive divergent bottom that we have seen on almost every single bottom it has struck for the last several years. While it is certainly possible we have bottomed without this evidence, not having it in our back pocket does make me a bit more cautious, especially where we currently reside.
Since silver has the cleanest pattern of the 3 main charts I am following in the smaller degree, I am going to be focusing upon it. As you can see, we are now just below another a=c level in the 16.40 region. Clearly, this can still be a 4th wave, which sends us lower for that lower low to give us a positive divergent bottom.
Yet, there is evidence on the chart that the market wants to break out right through that resistance, and it may even be on a gap up over resistance tomorrow. This is what we call an inflection point. And, I cannot tell you which path the market will surely take. What I can tell you is that if the market does drop down again, it will be a strong buying opportunity.
Should silver be able to take advantage of the bullish set up and break out over resistance, then I will be looking for waves 3, 4 and 5 to complete wave (1) off the lows. For now, the 16 level is the support that can keep pressure to the upside. A break below 16, with follow through below 15.57 suggests that we can be heading down the 14.60 region. However, a break out over resistance should be pointing us towards the 18 region for all 5 waves off the low, as presented in green.
This now brings me to GLD. Again, the daily chart looks so good to me, whether a lower low or not is struck. For now, support resides between 116.50-117. Should we hold support over that region, we can still complete 5 waves up towards the 120 region.
This brings me to our latest problem child – the GDX, which seems to be lagging. Even though silver has made it up to its 1.00 extension, GDX has clearly not come close, as its 1.00 extension is in the 22.65 region. As I noted over the weekend, I really need to see us take that out to the upside to make me less concerned that this is a corrective rally.
So where does all this leave me? Well, it certainly does not make me bearish. But, the door for another lower low is still open, at least until the GDX and silver are able to prove to us they can take out their relative resistances. Moreover, many of you know that I have hedged my portfolio on many of the potential downside set ups. This time, I do not have any sizeable hedge positions (it is rather small relative to prior hedging periods), as I am not strongly certain that a lower low will, in fact, be seen. Should the market begin to break supports, then I may add to my hedges. But, in truth, I really do not have the desire to trade for another lower low, and I am simply going to be a bit more patient for the next larger degree rally to take hold. I still believe we are quite close.