Make Kitco Your Homepage

Getting Dangerous To Be A Bear In Metals

Commentaries & Views

First published Sat Aug 4 for members of ElliottWaveTrader.net:  As the world-wide population has grown, much concern has been building regarding how we will be able to continually feed this ever-growing population.  Since there are only so many resources available, many scientists question our ability to produce enough food to be able to sustain our population. 

I think we are getting to the same point regarding the bears in the metals market.  What invariably occurs within markets is that the more entrenched a trend becomes, the greater the number of believers in that trend grow.  So, as a bull market hits its highs, with the great majority believing the rally will go on forever, there is no one left to continue to buy to push it even higher.  That is why bull markets do not end because of selling, but, rather, a lack of buying.  There are no more buyers to bring to the market since everyone has been converted into a buyer and those buyers simply run out of money.

The same is true of bear trends.  So, as the market reaches its climax in percentage of bearish investors/traders, we simply run out of sellers when we approach the lows. That is why we see waning technicals at the lows (which evidences waning selling), along with positive divergences.  The selling simply dries up.  So, it seems we will soon be running out of food to sustain the bears, as there are simply too many of them now to feed.

When we begin to see heavy positioning of bearish bets and along with the patterns we follow reaching a minimum completion point, we have to begin to realize it then becomes dangerous to be a bear.  And, in the metals market, this is what we saw at the highs in 2011, the lows in 2015, and I think we are approaching that same extreme point in 2018, especially with GLD hitting lower levels this past week for which I have been patiently awaiting.

With the GLD finally hitting that target box to which I have been pointing for weeks now, we have struck the minimum target at which I can expect a bottoming.   Yet, when I review silver, ABX, GDX and GLD, I have no structure off the recent bottoms which evidences that a new bullish rally has begun.  I just cannot make out any clear 5 wave structure off any bottoming at this time which would make me confident that the bottom has been struck.  This leads me to believe that, even though that rubber band seems extremely stretched to the downside and can snap back at any time, I think we may still see another 4-5 before this c-wave completes. 

But, that does not mean I would suggest to anyone to be turning bearish.  Rather, I think investors (especially long-term investors) have to realize that this is another buying opportunity being presented before you. As you can clearly see on my daily ABX chart, we are within the buy zone I pointed towards in 2017.   While we can still see a 4-5 take shape to complete this last segment of downside, and maybe even slightly drop below this buy zone, I still view this region as a great opportunity, especially if one has a perspective on this market which is more than a few weeks.

As I also mentioned in this past week’s mid-week analysis, the market is starting to “feel” similar to the last half of 2015.  While another 4-5 would really set up a very nice bottoming structure, it also would likely set up sentiment readings in this complex which would rival that of late 2015, or even worse.

In the upcoming week, I will be on the alert for an impulsive structure pushing much higher in the charts we follow.  However, based upon the rally we have seen thus far, I cannot say that this is my expectation at this time.  Rather, based upon what I am seeing, along with the rally we experienced on Friday, it still seems like this c-wave of this larger degree 2nd wave we have been tracking has not yet completed.  And while we may very well turn out like the bottoming in 2015, which began in an overlapping manner, I am still going to need the market to prove that to me before I am able to turn very bullish in the near to intermediate term.

See charts illustrating wave counts on ABX, GLD, GDX & YI.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Precious Metal Charts

Follow Kitco News