Avi says. . .
Sentiment Speaks: Dangerous Position If You Are Bullish Gold
Aug. 26, 2021 8:00 AM
Summary
A metals bull is sounding an alarm for a potentially bearish decline.
We currently have a setup developing that can provide a big hit to the metals market.
I outline the parameters for this potential decline below.
This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Learn More »
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My mother used to say that if you can’t say something nice, you should not say anything at all. And, to be honest, that is the main reason I have not written anything regarding the metal’s complex for some time, as there have been no solid bullish set ups yet to be seen.
But, what has made me consider writing this update is that there is a dangerous set up in place that can take us down a lot further than many probably expect right now. The analogy that I gave to my subscribers is that the metal’s bulls are down 3-0 in a seven-game series right now.
I am going to keep this update rather simple. Moreover, I am going to use GDX as my proxy for this analysis, since the structure is most clearly seen in that chart.
Last week’s low is of utmost importance. Moreover, GDX MUST hold the 31-31.35 region and begin a rally that takes it through 33.85 in order to complete a 5-wave rally off last week’s low. If it fails to do so by either rolling over immediately below 31, and following through below 30.64, or by rallying up towards 33.85 and then rolling over before completing a 5-wave rally, then it opens a trap door pointing it as deep as the 21 region. Yes, you heard me right - this is not a typo. And, should we break down below 30, then our resistance will be 31.50 on any bounces thereafter. But, should that resistance hold, 21 is a very realistic target.
You see, last month, GDX had a bullish set up to break out and finally begin a rally to 50+. And, I was personally waiting for that set up to trigger before I turned aggressively bullish the complex (and before I would even write an article). But, with the drop we saw a few weeks ago, the market invalidated that immediate bullish set up, and has now provided us with a much more immediate bearish set up.
As I have said before, when the market does not follow our primary expectation, it forces us to immediately move towards our alternative expectation - our contingency plan, if you will. And, this allows us to protect our positions so that we do not incur significant losses.
I will not likely be publicly updating anything further on metals for at least the next month, as I am quite busy with our members and with the high holidays that are coming around the corner. If you want further detailed analysis on how to navigate this treacherous zone, you can feel free to join us at The Market Pinball Wizard for a free trial. But, I simply will not have any time to do further public metals updates in the coming month or so.
So, I guess you can consider this my warning to all those who are uber-bullish, and believing that inflation is going to be the savior for the gold market. Think again. And, should this downside set up trigger over the coming week or two, then it should put some fear in those who believe we are fighting inflation, as gold is supposed to be rallying during inflationary periods, at least according to those folks.
As for me, I do not hold to such fallacies. In fact, I have strongly questioned the inflationary argument since we have seen lumber come crashing down, interest rates rising and the dollar rising, among other signs. This should not be happening if we had true inflation.
But, to be honest, I abandoned economics many moons ago to determine market direction, and this is despite my holding a degree in economics. I mean, if we consider that economists have only recently proclaimed the economy is no longer in recession, especially after a 2000-point rally off the March 2020 low, well, need I say more about the usefulness of economists in determining market direction?
Of course, I cannot tell you how this will certainly play out. The bulls can come back and win 4 games in a row by providing me with an impulsive 5-wave rally at any point from now, and then I will certainly reconsider any near-term potential downside structures. But, until such time, consider this a warning to you bulls to stay safe, and be careful. The set up that is in place at the moment is a bit dangerous to the long side over the coming months. Trade this carefully.
