Price Action Over the Past Week
Last weekend, I noted the following:
I believe the start of the coming week will be exceptionally important to any near-term bottoming expectations. If the market is going to hold its main support regions (GDX 19.80, silver 16, and GLD 112), then we need to see a rally begin at the start of the week. Ideally, that rally will be corrective and set us up for a final low later in the week.
Thus far, the market has provided us with our "bounce" and, yesterday, the market began lower.
Anecdotal and Other Sentiment Indications
Two weeks ago, the market "knew" something would occur with almost near certainty. If you spoke to anyone in the "know," they would have clearly and confidently told you that if Clinton won the election, gold was going to tank. And, if Trump won the election, gold was going to soar.
We all heard it. In fact, we heard it for weeks. It was so commonly accepted that no one even dared to doubt it.
Yet, as I warned so many times, this was no different than the market "knowing" that gold was going to exceed $2,000 in 2011, and was going to drop below $1,000 in 2015. Seems the market really knows nothing, doesn't it?
But, wait a second. Let's think about this. I mean, everyone believes that this type of "fundamental analysis" is really what controls the market. So, maybe we are missing something? Maybe I really am wrong in my assessment.
Could I be wrong? It certainly is possible. Maybe the market price reaction really got it right but the reported news is wrong? Could it be that Trump will actually not be sworn in as the President in January? Maybe the market knows something we don't? Could it be that Hillary Clinton is staging a coup d'état?
We have all heard the theories being thrown around of late. Could it be that the market is giving more credence to the potential that Hillary will still be sworn in as President in January than the market analysts are? I mean, maybe the fundamentals are really controlling here, but we just don't realize it?
So, think about it. The market must now be assuming that Hillary is going to be sworn in as President in January. That is what is supposed to happen if gold were to drop. And, gold certainly did drop, so, that must be why the gold market tanked. The gold market must be sure that Clinton will be sworn in as President in January. It is the only thing that really makes sense.
So, stop listening to news. The market is speaking louder and clearer than what has been reported in the media, yet again. The gold market is stating loudly, clearly and confidently that we will soon see Hillary Clinton sworn in as President of the United States of America. Yes, ladies and gentleman, the gold market is telling us that we are about to see the first female President in our 240 year history. I think gold is really telling us that we will be making history in January.
Then again, the other possibility is that the market must be in denial. I have lately seen so many citizens of this fine country crying and reacting in complete denial about a Trump victory at the polls. Maybe the gold market is also in denial.
Now, I also have to warn everyone about the contrary ramifications. If Hillary is truly unsuccessful in her coup, or if the market is truly in denial, and Trump really takes office in January, THEN the gold market will certainly take off in a moon shot, just as everyone believes. I mean, everyone is usually right when the significant majority of the market believes in a directional perspective. Right?
Price Pattern Sentiment Indications and Upcoming Expectations
The metals have now dropped to the region we expected to be tested if a true bottom was going to be seen. As noted last weekend:
If the market is going to hold its main support regions (GDX 19.80, silver 16, and GLD 112), then we need to see a rally begin at the start of the week. Ideally, that rally will be corrective and set us up for a final low later in the week.
The metals provided us with that corrective bounce into the middle of the week, and have made lower lows later in the week. The question now is if next week will present us with a reversal or a break down. My primary perspective has me looking towards a bottoming in the near term in the complex. We will need to see an "impulsive" move (Elliott Wave term of art) over this past week's high to provide us initial confirmation that a bottom may be in place. Ultimately, silver will have to break out over 17.74 and GDX over 24.25 to give us much greater confidence that a bottom is in place. Should that occur, I will consider reducing my hedges. But, we will not likely get our answer until next week.
Recognize that while there is still potential to strike lower lows below the Dec/Jan lows in the metals, the probabilities still suggest that the low is in, as long as we remain over support. So, while you may have 10-15% of risk for stops on the downside, the upside should exceed 200% in the miners' complex. Is this not an exercise in risk/reward analysis?
And, I want to remind you of how I concluded my article with last week:
Lastly, remember that we deal in probabilities and not in certainties. Markets are non-linear systems, which means that one must not maintain a perspective written in stone. One must read the market as it is, rather than continue to hope when the market moves against you.
Thus far, we have been on the correct side of the market looking for lows below the October low. But, in order to maintain the larger bullish perspective, the bulls will have to step up in the coming week.
So, while it is clearly advisable to have a primary perspective as to how you view the market, when the market makes it clear your primary perspective is not sustainable, it is most profitable to re-align your view with the markets action, and having that alternative plan in place before needing it makes it much easier to adjust quickly. That is the goal of my writings when I present the alternatives, and hopefully they will guide you appropriately. And, if you do not agree with the manner in which I view markets, then I suggest you move on rather than post a foolish comment, as I do understand that many are not able to grasp how to appropriately view non-linear markets.
Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: My long positions are hedged until the next uptrend proves itself.