There Is No Downside For Metals Investors
First published Sat Nov 26 for members of ElliottWaveTrader.net: In my mid-week night-time update, I generally noted what I am seeing in the market:
The metals markets are all now hitting the downside retracement targets for support we have been speaking of and focusing upon since the market confirmed this pullback months ago. The market has positive divergences at the lows we are striking. The sentiment readings are at the levels when we struck the lows this past January. Anyone who is not a perma-bull has just about thrown in the towel. Most in the market are pointing to the exact same heads and shoulder break down and looking for the market to now drop to lower lows – which I warned you about months ago. The only type of rally people think is possible is a corrective bounce. I see people cursing out other analysts that told then to buy at much higher levels.
These types of indications are usually seen as markets bottom. Yet, many traders in the market are now pressing their shorts after the neckline of the “clear” heads and shoulders pattern has broken, and this is something I also warned about weeks ago. But, if the entire market sees this “clear” heads and shoulders pattern, and discusses it ad nauseam as we see today, do you think it will play out as the majority of the market believes? Moreover, do you know what happens when a heads and shoulders pattern fails? We see a violent move in the opposite direction.
I am going to digress for a moment, and note that I have received many dozens of messages from members at Elliottwavetrader.net over the last 6 months telling me that they have become “new” millionaires due to the analysis we have provided, especially in the metals complex. Most of them bought in the “buy box” I had provided at lower levels. But, what is interesting about those that bought at lower levels was that they bought when the pervasive “market-think” suggested that the market was heading even lower. And, when they entered the market by taking a contrarian stance, even though it was very difficult, they were handsomely rewarded. Today, we have the same opportunity, yet the upside is even greater on a percentage basis, assuming we are able to hold support. But, most are still persuaded by the overall bearish sentiment prevailing in the market, just as it was back at the end of 2015 and early 2016, and afraid to even make an attempt.
So as long as we remain over support, my primary perspective will not change. Since I am not a prophet, I can certainly be wrong in my expectations. But, as long as the market remains over support, I have to maintain my expectations, especially with the general sentiment in the market hitting levels of extreme bearishness. And, as Baron Rothschild famously said, “the time to buy is when there is blood in the streets, even if it is your own.” This is what successful investing is all about. Do not be afraid to be wrong, and just accept that you will be wrong at times. But, do not fear being right as well, and recognize when the time comes that you need to act.
Again, I must reiterate something I noted in my mid-week update that one must not fear being wrong in the market, as we are all wrong at one time or another. Rather, one must fear being wrong in the market only when you remain in a position that is clearly wrong in the market. You want to invest your money when the market moves into a region of support, and if that support breaks, then you stop out so you do not remain in a wrong position. But, when the risk/reward favors you as the market drops into a support region that is usually the time to place your money to work, especially when you have a small window within which you may be wrong.
So, as we are now striking the support regions we were looking towards back in September, I think we have a small window left for the bulls to be stepping forward. If we are correct that the market is now bottoming out, then you have an opportunity to buy into the market at prices you may not again see in your lifetime. However, if we are wrong, and are forced to stop out, and the market drops to levels below the lows seen in December and January, offering us another “sale” in the market, I view that as a huge opportunity for metals investors, and not something to be feared. So, to be honest, is there really any downside in either of these situations for long term metals investors? For those that really understand the long-term opportunity in the complex, the answer is a clear “no.”
For now, my primary expectation is that the markets are bottoming, and are going to begin their next bull market phase in the near term. As long as silver holds 16, GLD holds the 111/112 region, and GDX holds 19.80, then there is nothing to worry about. However, as I have noted many times, the metals may spike below their ideal supports, and then strongly reverse, which often happens in markets, as it shakes out those counting on support to hold and then turns back up. This is why one should always place their stops just under their ideal support regions.
So, I will note that there is a 15.75 level of secondary support below in silver and 18.70 in GDX, below which the bears can very well take control of the market again to drop it to levels lower than those seen this past December and January. A break below 18.70 in GDX will then set us up for a test of 16.50-17, which if broken, points to as low as 7-9 in the GDX. Again, this is not my primary expectation at this point in time, but I always have to understand the risk in the market at any point in time so that I am seeing the market as it is rather than as I hope it to be.
I have been told many times that when I begin to discuss the alternative counts in a bit more depth, that is usually when the market is just about to turn and confirm my primary bias. I expect this time will be no different. But, as I have quoted Ben Franklin many times, “by failing to prepare, you are preparing to fail.” So, as an investor, you have a responsibility to make a plan which fits your risk profile, especially when we are in such a pivotal region. And, no matter which way the market turns in this region you must act on your plan, rather than rely on “hope.” For, as I have written so many times before, “hope” kills more investment accounts than stupidity.
See charts illustrating the wave counts on the GDX, GLD and Silver (YI) at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-Silver-201611291425.html .