Is It Time to Give Up?

When dealing with markets, one must avoid, as much as possible, emotional responses and simply focus on the facts before us. Last weekend, I presented my “factual” analysis of the market, and explained why I have retained a larger degree bullish perspective. I suggest you review what I wrote so you can understand how I weigh the pros and cons in the complex, and why I have come to the conclusion I maintain. Moreover, within the analysis I have been providing for the last month, I have been suggesting that another drop will likely be seen in the GDX and silver, and this past week that has finally been seen.

With the drop this past week in silver and GDX to lower levels below the November lows, the market has just about completed the pattern I have been tracking to end this correction which began in August. As I noted during my mid-week update, the initial rally off the Jan/Dec lows took 8 months, and the correction has now taken half that time. This is quite normal for timing on corrections, so there is nothing unusual about the timing aspect of the correction.

What is unusual about this correction is the depth of the drop in gold. While it has clearly broken below ideal support in the 111/112 region, it has been the one issue which has caused me concern about the market holding support on this correction for weeks now. But, if I were to base my entire analysis on simply silver and GDX, as well as the mining companies we track, I would be strongly confident of the bullish bias I have still retained. Yet, this one factor has shaken that confidence, as I have been noting for the last two weeks since we broke below the 111/112 support region.

So, in attempting to avoid any “emotions” of concern I feel for the GLD chart, allow me to explain what I am seeing in the GDX and silver charts which cause me to retain a strong bullish perspective in those two charts.

As you can see on the GDX daily chart, we have strong positive divergences in the MACD on the daily chart. Moreover, the pattern to the downside seems to be completing its “final squiggles” in its Elliott Wave count. That means that, if we are correct about this market bottoming, we are likely only within days of the completion of this downside correction (if we do not have a truncated bottom already), and we should see a very strong move higher over the next week or two.