Follow the Herd With GDX and GLD

By: Avi_Gilburt

For those that follow me regularly, you will know that I have been tracking a set-up for the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), which I analyze as a proxy for the metals mining market. I also believe that GDX can outperform the general equity market once we confirm a long-term break out has begun, and I still think we can see it in occur in 2018. This week, I will provide an update to GDX, but want to also discuss the SPDR Gold Trust ETF (NYSEARCA:GLD), which is an ETF that attempts to mirror the movements of gold. While I have gone on record in this webinar as to why I do not think GLD is a wise long-term investment hold, I will still use it to track the market movements.

What is typical in every market you will follow is if price is moving in a specific direction, the common expectation is that it will continue in the same direction.

In an article by Caroline Baum in Bloomberg entitled “Rearview Mirror Is Where Economists See Future,” she termed a forecast based upon fundamentals a “Hindcast.”

I think that pretty much says it all. But, within the same article, she quotes Bob Barbera, chief economist at Mt. Lucas Management Co., as saying “allowing the pace of economic growth in the last three to six months to dictate the next three to six months beats most forecasts – except when it matters.”

That is an amazing statement if you take the time to think about it and understand what the author is really saying. It means that using backward looking information, in other words, using fundamentals to attempt to forecast the future only works in a trend. It will never be able to identify a trend change, which is “when it matters.” And, those who simply expect the current trend to continue unabated usually find themselves in the same boat.

Now, it does not necessarily mean they will not be right in their expectation that the current trend will continue. After all, it is a trend. But, it is saying that they have no tools to identify points at which that trend may change.

This aspect of market analysis is what we focus upon. We use our Elliott Wave analysis, coupled with Fibonacci Pinball and supporting technicals to provide us potential turning points, as well as confirmation points, as to where trend changes may occur.

Even though the market has been caught in a sideways consolidation during the last year, we have still been able to identify most of those turning points within this consolidation. And, it seems as though we are approaching yet another inflection point which can trigger a significant turning point.

This past week, I provided resistance regions to my subscribers at ElliottWaveTrader.net. And, the market rallied strongly right up to that resistance, and turned right back down.

While I am seeing some “signs” that may be looking positive, I have no clear indications YET that the GLD or GDX have bottomed. All are still below relevant resistance, and I do not have any CLEAR micro 5 wave structures which strongly suggest that the market has certainly turned up.

At this point in time, from a smaller degree standpoint, as long as the GLD and GDX remain below their prior week’s high, pressure will remain down, with the next target for GLD in the 122 region and the low 20 region for the GDX.

Should we see an impulsive 5-wave structure taking us through last week’s highs, then we can begin to entertain a bottom being in place for the complex. Until such time, pressure will continue to be down.

But, I do want to warn you that bearishness seems to have risen of late in this complex. And, I am hearing many calls again for a break down below that seen in late 2015 or early 2016. So, it seems the herd has begun looking down again in earnest simply because the trend is down. And, the more the trend continues lower, the higher the certainty that it will continue in the same trend. This will lead us to our next major inflection point.

See charts illustrating the wave counts on the GDX and GLD, as well as ABX & YI.

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

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