Metals and miners update.

Per my previous post, my JNUG model has been playing out pretty well and it indicates a M+M rally for the next couple days (at least).  I say "pretty well" but most traders would call it "ridiculously well".  I'll stick with just "pretty well" for two main reasons:

First, I believe that success is short lived for those who get caught up in the excitement.  It's a bit of a take off on the "pride goeth before a fall" theme but I think they are closely related.  It is so easy to get swept up into a mindset of invincibility and to stray from "fear with discipline" only to find yourself underneath a falling axe.  I'm guilty many times of it myself in the past.  After careful analysis I finally realized that what drives this is that I really didn't believe in Elliott waves.  Yes, they had some good successes but also some failures.  At least I blamed the failures on EW.  Now I have really internalized that there is no certain thing, only odds and trigger points and EW patterns that tend to recur.  If the trigger is hit, you buy or sell without emotion.  The fault was not with EW but with my own pride.

Second, I have finally sided with Prechter in a very fundamental but wildly important way:  He calls Elliot waves a "principle" as in "The Elliott wave principle".  Look around the web and most people call it the Elliott wave theory.  There is a huge schism between the two terms.  It's basically the difference between believers and skeptics.  I was a practicing Elliott wave skeptic for years and years.  It was only after I began to apply EW to things other than stock charts that it really dawned on me that it applies to everything.  I believe that EW are somehow a fundamental construct of the universe.  Don't ask me for any more detail than that, I am still trying to work it out in a way that would satisfy an engineer (i.e. proofs).  But my personal experience has been that EW predictions of pretty much anything are far more likely to come true, as long as there is clear data to model, than any other kind of analysis I know of.  This epiphany has made a fundamental difference in the way I apply EW to stock charts:  I am no longer surprised that it works.  I now expect it to work, limited only by how carefully and faithfully I interpret the charts.  If you expect something to happen (while knowing when it is decided that it will not happen) then you can avoid the excitement to a large degree.  Removing the emotion from the trade is key to success.


But I digress.  Look at what just happened to SLV.  The 5th wave of this triangle did end up throwing under and then today it powered back up into the channel with some gusto.  It is not confirmed yet but this likely means that the 5 wave downward sequence that began in late Feb is either due for a significant rally OR that the bear market in metals is over.  Either way, This is a good time to be long the M+M.

Having said that, there is a chance that the recent throw under was just extending where wave 3 actually hit.  It's too complex to explain quickly but I will say that my first bounce target is the horizontal blue line and that all of this is bust if we see a lower low.  I really do not expect to see more uninterrupted weakness after seeing these past 5 waves down but keep in mind that if this really is a triangle, that 5th wave should have been 5-3-5, not 1-2-3-4-5.  So this could just be A of C.  If, for example, the wave moved to the top of the channel and then could not break out, we could see another 5 waves down just like those between the labels "4" and "5" above.

But if we are fated for those 5 additional waves, they will not likely come without some kind of significant retracement in order to draw in more buyers.  Short term volatility aside, I think M+M are a good bet here.  There could be another wave down to form a double bottom in the next trading day but I would just hold fast through it and wait for the upside.  Why?  Because this C of 5 is already very close to being the length of 1 of 5 and 3 was the extended wave.  So 5 is not likely to extend.  Plus, 5 had a throw under and then robust move back into the channel that looked very motive, not corrective.  It's all about odds and my read of the EW model says that the odds currently favor longs.

There is potentially large upside to this trade.  If the upper channel breaks out then expect a very nice run for M_M.  It could even signal the end of the metals bear that has been terrorizing metals investors (and paper metals gamblers) since early 2011.  NO BEAR LASTS FOREVER. 

With all that said, anyone who is not already invested might want to wait for the breakout of this down sloping resistance line that the shares have stalled at.  While I think the odds are high that a rally is going to happen soon, I'm an active trader and so when I see this kind of weakness up against resistance I tend to take profits knowing I can always jump back in easily.