Time For The Gold Bulls To Step Up – If There Are Any Left

First published Sat Nov 19 for members of ElliottWaveTrader.net: Two weeks ago, I noted that we had a completed pattern to the downside in the equity market and it was time for the equity market bulls to step up.  And, boy, did they ever. Now, it is time for the metals bulls to do the same.  But, it seems I cannot find them.

Last weekend, I noted that the bulls have gone into hiding.  This past week, they were scared even further into their shell.  Yes, bullish sentiment in the complex has dropped to almost nothing.  For those that review market sentiment readings, you will know that we have almost no bulls left in this market, or at least bulls who are willing to admit it.  That is often a strong indication that we are bottoming, and not collapsing.

I also noted in my last weekend report that, if our pattern was going to hold for potential bottoming in the complex, we would need to see a “bounce” early in the week, which would then likely lead to a lower low later in the week.  The market has followed through quite nicely with this bottoming pattern thus far.

Moreover, the positive divergences we are seeing on all time frames is quite stark and strongly suggestive of waning selling pressure.  If we review the silver charts, we see positive divergences on all time frames from 5 minutes up to daily.  Our 144-minute chart, which has given us the strongest indications of impending tops and bottoms in this complex all year, is strongly suggesting that we are now bottoming.  Will it be the first false signal we have seen all year?  I cannot answer that.  All I can do is work on probabilities and the probabilities are strongly in favor of us bottoming very soon.

In fact, there is potential for the GDX to having already bottomed.  We have what can be considered a “micro” 5 wave structure off the last low struck in the GDX.  And, when silver and gold made lower lows, GDX has only pulled back correctively thus far.  While I still need to see us take out last week’s high and move through the 24 region to confirm this potential, I have to at least note the potential we are seeing on the chart.

While I have been noting that support in the GDX is 19.80, and we have held it rather well thus far, IF we do see more weakness in this complex, a spike below that level which is reversed rather quickly will likely be a st1rong indication of a bottom being struck.  But, the market will have to strongly break below 16 in silver and 111/112 in GLD to take the probabilities much higher that lows below the ones seen in December and January can be broken.  Until such time, I still maintain the perspective that the low has been struck in this complex with an estimated 70% probability and the set-up is now in place to see a strong reversal.  But, since I do not control the market, it’s time for the bulls to either step up or else we may have to modify our perspective over the next 6 months.

To add to the potential that the market is bottoming, several of our analysts at Elliottwavetrader.net have come to similar conclusions, but based upon other methodologies.

First, I want to introduce you to Princely Mathew.  For those of you that do not know him, Princely finished 2nd in the World Cup Trading Championship last year, so he is clearly quite an accomplished trader who we feel fortunate to have in our trading room directing our members.  Princely runs The Smart Money service at Elliottwavetrader.net, wherein he utilizes a collection of proprietary indicators which provide insight into how the ’smart money’ or institutional money is positioning themselves.  He also provides timing cycle analysis in our Trading Room for the gold market.  Based upon his analysis, Princely also sees the gold market as bottoming in the very near term.

Next, Victor Nguyen, who runs our Quant Index Signals service at Elliottwavetrader.net, uses a fractal algorithm to identify turning points in the market, and has issued a “daily buy” signal for the gold market. Lastly, Dr. Cari Bourette of Marketmood.net also sees the gold market bottoming imminently, based upon her algorithm which tracks market sentiment.

And, in case you are asking yourself the question, yes, all these analysis methodologies supported our wave counts that the equity market was bottoming two weeks ago.  So, we have several different analysis methodologies all pointing to the same conclusion now in the gold market.  Therefore, I still believe the probabilities rest in our favor that the market is bottoming in the near term.

So, now is not a time for “hope.”  Now is a time to have a plan and take action.  As Ben Franklin has said, “by failing to prepare, you are preparing to fail.”   And, as long as we remain over cited support, I am looking up.

See charts illustrating the wave counts on the GDX, GLD and Silver (YI).