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Summary

  • Most of the retail market seems to be bullish.
  • "Smart" money is as bearish as they have ever been.
  • Upcoming week's expectation.

As the metals tick higher and higher, we see the normal market "feelings" displayed across the media: "Get in now before we are at $5,000 gold." Yes, so many are so sure that this time the metals have finally bottomed. And, all these same "cheerleaders" think that we will wake up one day and magically find ourselves at the wished-for heights. They don't tell you that the next bull-run will take years, just like the last one did. So, in my opinion, I would like to be more certain of a bottom being in place. The continued throwing caution to the wind by most market participants has only ended up in pain for the last 3 years.

But, as many of you who read my analysis know that, although I am a long term metals bull, I am clearly not in the intermediate term bullish camp at this time. Yet, I have been in the short term bullish camp since we broke 122GLD and pulled back to 121.75GLD, which is where we climbed on board to ride this short term bull move. But, I will discuss what will get me to a more immediate bullish stance later in this article.

Last weekend, I presented a potential scenario for a market whipsaw, which would start with a down move. Early in the week, the market began a move down, but the manner in which it moved down was not suggestive of the fact it would play out in the manner in which I presented last week. This opened the door to the move higher we saw, which I discussed in an update on Elliottwavetrader.net earlier this past week.

So, while I have, so far, been wrong in my primary expectation of how this current counter-trend rally would take shape in the very short term, we were able to pick up on it early enough to recognize that lower was not setting up for this past week. But, as I have said many times over the last few months, corrective action in a market requires you to maintain an open mind and be nimble when you trade. Corrective action is the most variable of all movements, so while we can have a general expectation, we have to be very open minded to recognize when to abandon those expectations so that we do not find ourselves on the wrong side of the market.

In moving on to the latest Commitment of Traders report, it seems that the commercial traders - the supposed evil empire . . . er . . . I mean manipulators of the metals world - further added to their net short positions, while the hedge funds added to their long positions. This is normally viewed as being very bearish for the metals market.

But, wait a second. If the market is truly manipulated by these commercial traders, how come we have not crashed yet? We now see extreme short positions by these traders, yet, not only have we not crashed, but the metals continue to go up. Hmmm. Is this considered "control" or "manipulation?" I thought the definition of the word "control" was to exercise direction over, dominate or command. Well, it seems that the market has been moving in the opposite direction of those who supposedly "control" it.

So, of course, those who are not burdened by these facts, and still claim that the market is manipulated, only come up with excuses. They will say things like "the market will eventually be manipulated by these traders." Well, to me, that sounds quite similar to those that claim that "the market will eventually trade based upon fundamentals." And, just like silver has lost as much as 60% of its value from its highs, despite positive fundamentals - which is a clear indication that fundamentals don't control this market - this same perspective regarding supposed "manipulation" is simply not an intellectually honest perspective, in my humble opinion.

The reality, for those willing enough to open their mind to see it, is that these "evil manipulators" simply see the same thing that I am seeing in the market and are positioning for the next big fall that we all expect. In fact, I accurately provided advanced warning weeks ago as to when these commercial traders would begin to short aggressively before they began to register their positions. But, until sentiment is ripe for that downturn to take hold, we will all be waiting patiently and modifying our positioning. So, ultimately, sentiment is more powerful than any trader group or supposed "manipulators."

Over the last few weeks, I have been getting more and more email, messages and posts telling me that I am completely wrong to expect a lower low in metals. Everyone really seems to convinced that the bottom is in, yet again. We have been through this several times over the last 3 years, and I don't think this time is any different. But, of course, I can always be wrong, so let me tell you what will make me think I am wrong.

In GLD, there is long term Fibonacci confluence within the 137.50-139 region. If GLD is able to strongly take that region out, then I will be much more open minded to the potential for us to head to the 250 region, at a minimum, with the potential to go much higher. So, as we are currently within the 128/129 region, I am allowing for another 10 points in GLD before I consider the bullish side of the market. Until such time, I am looking for a lower low.

And, if you really think that is a lot of room, consider the bigger trend and potential. If I think GLD can head at least 30 points lower, why would I not wait for the market to prove me wrong within the next 10 points higher? While the potential is over 110 points above that (from 140 to 250+), I will not be missing much by waiting. But, I could very well avoid another blood bath in the metals market by allowing the market to prove its true bullish intent, while I believe that it is truly still a bear in disguise.

As for the upcoming week's expectation, it is not terribly different than last week. While last week I presented the potential for a whipsaw move, with a strong downside drop seen before a final move up to complete this counter-trend move up, I think we are just about out of time for this to occur. So, either the market is going to stay below 130.50GLD and give us a strong move down this week, or we are just going to stair step higher over the next week or two to complete the counter-trend rally without the whipsaw. Therefore, last week's summation is still quite applicable:

So, in summary, my pivot in GLD is now 125.70. As long as we remain over that level, we can still subdivide for a full 5 waves higher. However, should we break below it, then I will be watching for that whipsaw scenario, as long as we remain over 121GLD. Below 121GLD, and I think we are likely headed to new lower lows.

And, as a final note, for those that have followed me for the 3 years since I called the top in gold on Seeking Alpha, you know that I am quite market agnostic. I only want to be on the right side of the market. I have been both long and short this market at most of the appropriate times for being so, and have caught most of the market moves, both up and down, over the last 3 years. So, while I recognize that I will never be 100% accurate, we have done quite well following our market sentiment analysis.

But, any directional message must be from market sentiment, as represented within the price action, and not from the group-think that most follow. Until such time that we have a sentiment pattern that clearly tells me that lower levels will not likely be seen, I will still be looking for lower lows. Should the market prove me wrong in my expectations, you now have the initial signals presented here as to when I will reconsider that I may be wrong.

Disclosure: The author is long SLV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own intermediate term GLD puts

Source: What Will It Take For Me To Believe Metals Have Bottomed?