First published on Wed am Dec 13 on SeekingAlpha:
Recent price action
The last week has seen the metals and miners drop down into support regions. As I write this, we are sitting just over major support for most of the charts I follow.
Whereas the GDX likely provides the cleanest picture of the market potential right now, I will be providing you guidance about the GDX in my analysis below. And, while I maintain a strong bullish bias for 2018, the action we see in the coming weeks will tell us when we can begin to take a more immediate bullish perspective.
Anecdotal and other sentiment indications
The whipsaw continues. Most in the complex don’t know whether they are coming or going right now. One day we go up, another day we go down. And, many have become quite bearish again, with many even calling for lows below those seen in 2015.
My last article on metals, which was about whether the metals market is truly manipulated, certainly generated some heated debate. And, anyone who has an opinion about the issue usually has a very emotional perspective on the issue, which is often on display in the comment section.
But, the ones who seem to have the most vociferous reactions are the true gold bugs. In their world perspective, gold should never be down. Rather, gold should only be rising, so any drop in the gold price can only be due to manipulation. And, no matter how much evidence you present to them that they are being manipulated to maintain their beliefs more than the market is actually manipulated, they don their blinders and continue in their manipulation mantra.
The truth is that most market participants really do not understand the metals market. Many believe it is hedge against inflation. Many believe it is a hedge against market volatility. In fact, I even read an article a few weeks ago that claimed that weather will impact the price of gold. So, many seem to believe in fallacies about gold, and I have written extensively about this in the past.
But, there are few markets that are more clearly driven by market sentiment, and it is only clear to those who maintain an open mind about the metals. And, as I write this, we are at an inflection point in sentiment.
Price pattern sentiment indications and upcoming expectations
While I would absolutely love to know what the future holds with certainty, unfortunately, certainty does not exist. Well, then again, as a retired tax attorney and accountant, there is an old joke I used to really appreciate:
There are three things in life which are certain: Death, taxes, and tax reform.
But, I digress.
While many expect analysts to be clairvoyant, it is simply not the case. If an analyst is good at what they do, the greatest value they can bring to those who follow their work is to be able to identify turning points in the market. And, for those that have followed us for years, you know we have done quite well in furtherance of this goal.
So, this brings me to my point: we are now at a point where the metals CAN see a significant turn.
Rather than going into all the detail of what I am seeing across the complex, I am going to distill my perspective down to one chart – the GDX.
Once we broke below the upper support region we were keying in on back in September of 2017, I have been hyper-focused on a test of the 21 region in the GDX. This region will determine whether the market can see a much deeper pullback, or if we are just about done with the pullback, and the next major rally phase can begin.
Should we hold the 21 region in the GDX in the coming days, and see a rally back over 22.30, that is the first indication we may have a longer-term bottom in place. We would then need to move through the 23.20 level in impulsive fashion to provide further confirmation of a longer-term bottom being in place.
However, any sustained break down below 21 in the coming week or so will maintain the pressure on price to the downside, even if we bounce back up towards the 21.25-21.90 region.
In fact, a break down towards the 20 region, which bounces back towards the 21.50 region, is a short opportunity, using a stop just over the 22.30 region. As long as we remain below the 22 region on that bounce, it will likely be pointing us down to the 18.50-19.50 region first, then bounce back towards the 21 region, and then follow through down to the 17-18 region in the coming months before a long term bottom can be seen.
So, while my crystal ball is in the shop, and I am unable to tell you exactly what WILL happen in the coming weeks, I have provided you with a game plan as to how I see the potential larger moves coming in the GDX in the coming months. Just take note that we are at a major inflection point as I write this update. And, the one thing I see as a high probability right now is that we are about to see some larger degree moves starting in the coming week or two, and the 21-22 region will be the key to where we see a longer-term bottom in this complex, which will then set up the next major break out rally.