Summary
- Bottoming in the metals market presents us with a certain structure.
- Of late, I have been tracking a structure in silver which suggests we are in a "bottoming" mode.
- I think there is a little more work to be done to the downside in silver, but we are finally close to completing this pullback.
- This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Get started today »
I want to take you back a bit in time so you can develop the appropriate perspective of a bottoming process in the metals market.
For those of you that followed my analysis towards the end of 2015, you may remember that I was quite vocal of the fact that I was heavily buying mining stocks. In fact, we even rolled out our EWT Mining Stock service in September of 2015 to prepare for the bottoming in the complex we expected. At the time, quite a number of mining stocks were striking their long-term bottoms and beginning a strong rally.
Yet, if you also remember, it was not until the end of December of that year that gold struck its bottom. So, as you can see, we do not always see bottoming in all products and charts within this complex at the same time. And, at the time, we were quite prepared for that bottoming to happen, as Doug Eberhardt of buygoldandsilversafely.com noted:
I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. With gold you called it to the letter and your limit order which was placed well in advance executed perfectly. The silver limit orders were within a tight range of the lows as well . . . Your timing on buying the dips is uncanny Avi! People should be aware of this.
Yet, when you review index charts like GDX and GDXJ, which represent a collection of varying individual mining companies, bottoming can take shape as a very overlapping and unclear structure. The reason is that some of the stocks within the index are striking lower lows, whereas others have already bottomed. This push/pull type of bifurcation can sometimes make it more difficult to be certain of when a bottom is actually struck in the larger index itself.
You see, most corrections develop as an a-b-c structure, with the c-wave of that structure providing us with a 5-wave structure. When we do not see a CLEARLY completed 5-wave structure, it makes it much more difficult in being certain that a bottom has indeed been struck.
So, of late, silver has been the chart I have been highlighting to the members of The Market Pinball Wizard with the clearest potential for providing us with a 5th wave lower low. And, this past week, it followed through to complete that 5th wave.
This brings me to my next point. While I may not have stated this outright and clearly, there is a big difference in expecting the market to be bottoming, and in “confirming” that the market has bottomed. While I have been identifying the potential for the market being in a “bottoming” structure based upon having most – if not all – of its bottoming structure completed, as well as seeing the technical indicators suggestive of bottoming, expecting a bottom and confirming a bottom are two different things.
With silver now starting to fill in its 5th wave lower this week as we have been expecting, the ideal target for this last leg lower points us towards 15.65-16 in the futures. However, if we see an impulsive move back up through 17.35 before that downside target is struck, then we have a signal that silver has likely bottomed, and I am expecting a rally to begin, which will likely that us well into 2020.
So, not only is there a difference between expecting a bottoming and confirming a bottom, but there is also a difference as to when I want to turn very aggressive in the complex. My own trading plan turns aggressive when I am in the heart of a confirmed 3rd wave. For this reason, I have outlined to the members of The Market Pinball Wizard that I am going to wait until the market completes the larger 5-wave rally off a low, followed by a corrective wave 2 pullback before I consider adding leverage to my positioning. And, when we begin to rally over the top of the initial 5 wave structure, that confirms for me we are likely in the heart of a 3rd wave rally, and it is much safer for one to turn aggressive on the long side.
So, as I write this update, I cannot say that the market has yet “confirmed” for me that a bottom has been struck, especially in silver, despite my overall expectations of “bottoming.” But, I think we could be within a week or two of seeing that potential bottom, which would then begin a rally taking us into 2020 and beyond.
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