Over the weekend, I said I will need patience to determine how the market will shake out in this region. Moreover, I tried to calm your nerves regarding further potential immediate downside in the metals complex:
“I want to convey one last piece of advice before I conclude this update. When people see declines like we have seen in GDXJ and GDX this past week, many become emotional and react in various negative ways which are not productive to their ability to reason and plan their actions accordingly. When I see a move like this, I will attempt to day trade the downside moves (since I am net long) as I allow the bigger pattern to develop. But, more importantly, unless I have high confidence that we are striking a larger degree top, I will wait for the b-wave or wave 2 bounce before I begin to hedge my long positions in a meaningful way.
I know many of you now fear the same potential in the metals that we have seen in the equity markets. But please remember that what we have seen in the SPX decline is likely a once in a lifetime event for the reasons I outlined in my equity markets analysis. I have been doing this for many years and I have not seen such an event before. 99% of the time, the market provides us a “bounce” after the initial decline, and it is during that bounce where you should be making your decisions about how to protect your portfolio.”
The bounce we saw this week was exactly what we usually expect after a strong decline seen last week. It is extremely rare that markets move straight down without providing a corrective bounce.
In our case, this bounce has eliminated the potential for a 5-wave decline in the GLD, which tells me that we have not likely struck that dreaded c-wave top in red of which many have been quite fearful. Yet, it does not mean that further downside will not be seen. In fact, as you can see from the title of this update, I am expecting another bout of weakness in a c-wave decline to complete this pullback.
In silver, the next decline will likely be a 5th wave in its [c] wave. Nothing has changed my expectations in silver as long as we hold below the 17.50 level.
But, when we look towards GLD and GDX smaller degree charts, we have competing micro potentials. As you can see from the GDX, we have rallied in what looks to be a corrective move up just shy of the .618 retracement of the decline from last week. From there, I can make out a 1-2 downside structure in the GDX. And, as long as we hold below the high struck at 29.61, there is a micro downside structure in place to begin the c-wave down. If we hold that high, then the minimum target for the c-wave down in GDX would be the 23 region, wherein a=c.
Yet, both silver and GLD seem to suggest we can see a 5th wave in their [c] wave rallies. However, as I have been outlining these last two days, should GLD break below 153, then we will likely be in the c-wave decline, with a target in the 144 region.
So, my general expectation is that we are likely topping out in a b-wave rally, and preparing for a c-wave decline. In my most bullish patterns that I am tracking, that can end this pullback, and set us up for the next rally phase in the complex. The ideal structures pointing to this are in the silver chart and the GLD chart. However, once we complete the c-wave down, if the rally thereafter is clearly corrective in nature, then I will have to adopt the perspective that this pullback/correction will take more time and provide another drop before it runs its course. So, I am taking this one step at a time over the next 2-3 weeks.