When everyone turns bearish, especially after an impulsive structure off the 2015 lows has completed, and starts looking to further lows in the complex, it means the time is approaching for a potential reversal. One of our astute members at Elliottwavetrader.net put it best when he said “when fear of missing out turns into fear of being in, you know you're close to a bottom!”
In our Trading Room at Elliottwavetrader.net and in my live video sessions with our members, I have noted several times over the past weeks that the perfect bottoming set up would begin as the market recognizes a heads and shoulders pattern setting up in the GDX. And, many this past week were pointing to this “perfect” pattern, which they view as setting us up for new lows in the complex. In fact, it could be “too perfect” since the entire market seems to now be hyper-focused on how it is going to take us to lower lows.
But, my view was that this pattern could very well present the market with a head fake. I was viewing a break of the neckline as providing more confidence to the shorts in the market, as they would likely then press their shorts. However, I think there is a very strong potential for them to be seeing those shorts squeezed if we are to bottom in the coming week. Those shorts can certainly provide us with the fuel to begin our 3rd wave higher. While there is clearly no certainty in this potential, I have seen this happen so many times, especially when the heads and shoulders patterns looks “too good,” as this one does.
Now, since we deal in probabilities and not certainties, I can always be wrong. So, let me tell you what I need to see to believe I will be right. And, the early part of the coming week can potentially be “the tell.”
Going back to the GDX, as we have each time, since it has the clearest price pattern to me, I would want to see the week begin with a bounce back to the 22.50 region as a 4th wave bounce. That would then set up our test of the 19.80 region in the middle of the week, which “should” complete this correction based upon our primary count.
