Sentiment Speaks: What Was The 'Cause' Of Silver's Rally?

Summary

  • Price Action Over the Prior Few Days.
  • Anecdotal and Other Sentiment Indications.
  • Price Pattern Sentiment Indications and Upcoming Expectations.

Price Action Over the Prior Few Days

The metals market has clearly been pushing higher and MAY be developing a break out.

Anecdotal and Other Sentiment Indications

So, I noticed in one of my recent articles that someone took issue with my perspective that the substance of the news is not the cause of market movements. And, they used the example of "Brexit" to support their "thesis."

But, as I have said so often, picking and choosing your events or time frames to support your "thesis" should not sway one who is seeking to be intellectually honest. You see, I can post as many, if not more, scenarios where the market reacted exactly the opposite of the direction that the substance of the news event suggested it should have moved. As just two examples that come to mind, the first being the Paris terrorist attack last year, when the stock market rallied 100 points from that point in time. And, let's not forget how the metals reacted after QE3. Again, these are just extreme examples to match the Brexit one posted by the commenter. There are many, many more.

At the end of the day, if you want to claim that the substance of the news provides you with the directional bias in the market, then it must apply all the time. And, when you cannot explain the market moves in at least half, if not more, of the moves we see after news comes out because the direction is pretty much counter-intuitive to the underlying news event, well, then you really do not have a supportable "thesis."

Today, we had one of the largest moves in the SPX as well as the metals that we have seen in quite some time. But, was there equally impressive contemporaneous news to which one can point to "cause" these moves? I think not.

Yesterday afternoon, I posted an update in my Trading Room at Elliottwavetrader.net. Within that update, I provided detail insight into how I view the metals markets and which set ups I take and which I do not. To that end, we had a downside set up in the NYSEARCA:GDX, and I even noted that under normal circumstances, I would have shorted the GDX yesterday afternoon. However, I specifically noted that I would not short the market, and I would not be heavily hedged, but rather only maintain the smaller hedge position that I hold in December puts (with my heavier Nov put position being sold on October 9th), as I was going to remain net long.

The main reason that I did not pull any short trigger, and decided to maintain my net-long portfolio perspective, despite the standard short set up, was that silver had no equivalent downside set up and could still take us to our resistance region on our chart up towards the 18.60 region. And, as it turns out, it was a wise move we made last night.

But, again, we had quite a sizable move in the metals today with no related contemporaneous news. I still believe this was yet another example we can point towards where we can recognize that it is market sentiment that drives markets, and not news. Especially when there is no news to which one can reasonably point, yet the market moves sizably.

Price Pattern Sentiment Indications and Upcoming Expectations

As I noted in my last market update from this past weekend, I had to modify my resistance target in NYSEARCA:GLD to 124 because the set up was suggestive of higher potential in GLD. Moreover, I noted that the IMMEDIATE downside set up in GDX had a resistance of 24.60. But, remember that the larger resistance region was the 26.25 region. However, at this point, I am going to slightly modify that based upon the action we have been seeing. That now becomes the 25.95 level for resistance in the GDX. As long as we do not see the market move through these levels, then I am still looking for one more decline.

Whereas, in silver, while we still have not broken through my resistance at 18.60, I am seeing some technical indications that the bottom for this last decline MAY be in. Again, I really need a solid break out over 18.60 to confirm at this time.

During the week of October 9th, in our Trading Room at Elliottwavetrader.net I kept noting that the risk/reward perspective suggested that we focus on the long side, even though I was looking for one more rally followed by a lower low. But, as we know, sometimes those final lower lows do not materialize, which is why I usually suggest people begin focusing on the long side when we strike the low before I expect the rally setting up a final low.

For now, I have less conviction that the market can see that lower low, but, since I am did not get a completed downside structure, I still cannot get uber-bullish until I have a full "5 waves up" off the recent lows. But, at a minimum, the market is going to have take out the modified levels noted about, with silver staying at 18.60, GLD having been raised a little this past weekend to 124, and GDX having dropped a little today to 25.92. Should we be able to get through those levels, I think the rally can have much bigger legs in the coming week or two. We will then be able to begin to set up the major break out potential going into 2017. But, until that time, the potential for a lower low still remains quite real.

This article was written by

Avi Gilburt profile picture
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Avi Gilburt is founder of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis with over 6000 members and almost 1000 money manager clients. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition.

Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).

Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.

Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.

For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.
Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.

As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.

As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.

One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.


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: I still maintain a hedge until resistance is taken out.

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