Metals and miners update

While I would like to claim there was more skill involved in my recent JNUG trade, I know that there is a big element of chance with any trading system.  Of course, if you keep working the trade so that the odds are in your favor, you are going to get lucky now and again.

JNUG pulled back today along with the Dow sell off but there was clearly a bit of decoupling between the two.  The DJIA put in a lower low and JNUG did not.  But it did pull back to the 78.6 fib which is further than the 61.8 that I normally allow as the max retracement.  Also, the bounce looks, so far, like it could be an a-b-c.  But know in advance that these things are iffy to predict in such real time.




In any case, it leaves us with an interesting situation.  Clearly there was incredible pent up shorting in gold via these ETFs and when gold moved a little, the shorts just cut and ran.  I don't blame them as many still likely have profits to their name after the smack down gold and silver have received since March.  They were so anxious to short gold that it short stroked E of 4.  So here we are, likely near the bottom of wave 1 of 5,  Many don't know it to be that, they only believe that deflation will take gold metal down to $750 before the crash is over.  So they are laying into the shorts and sentiment, at least before yesterday, was extremely negative.  Plus, with the DJIA teetering it only adds more risk to holding anything except cash.

So here is the setup:  The count says that wave 1 of 5 down for metals should be done.  That means an a-b-c retracement is likely and by my estimation that would mean JNUG @ $20.  Something in the low 12s was simply not enough.  But how will it get there?

First, we have to look at the chart.  I've been observing for some time now that contracting wedges or ending diagonals (a specific form of the contracting wedge) have been 3s or Cs.   By my count, black 3 is where 5 rail bumps threw under.  Thus we should expect 4 and then 5.

So below I have shown two ways to get there: the red path and the green path.  The red path is more straightforward so I will go there first.  It says that red 4 came after black 3 and it tested the top of the rail before bouncing down one final wave into red 5.  The 40% move up on the 8th was therefore 1 or A of the retracement.  So how to count today's move?  It should have been a-b-c but it was not.  That is 5 waves down.  So we can either conclude that red 5 was in fact the real 3rd wave (which would violate my proprietary indicator that has been working too well to just blow off easily) OR it can be A of 2 (observe the small red lettering).  If that is the case then the rise into the end of the day was b of 2 and tomorrow we should get c of 2 which should not fall below red 5.

One thing going for this count is that red b did a perfect retracement to the prior 4th of red a and it looks like it was an a-b-c move as well.

Well, if they do that then I am going to throw money at JNUG because that means wave 3 or C will be on deck and it will not be weaker than wave 1 was.  Such a move would be market foolishness beyond belief but people who don't know the wave principle (most people that is) will not see it for what it is, the massive re-coiling of a spring.  Bottom line: if you see 5 clear, strong waves down tomorrow then that is most likely C of 2 and it is begging for your cash.  Of course, put stops below what you count as 5 since the count could be wrong or you could have counted wrong.  A fall to the $8.50- $8.75 area would make a very nice vee bottom 2nd wave and I suspect that since the left side was rounded, the right one will look like that red line: down and up.

The other most likely possibility is the green count which says that coming out of black 3 you had an expanded flat correction; these can go lower before going higher as did happen.   The prototype for expanded flat is seen below with appropriate colored numbering applied.


I can see an expanded flat in that count without much difficulty at all.  The move from green a to green b does seem mostly like the 3 wave a-b-c move which is demanded by the prototype.  Well, after that you are at green 4 and now have a clear reason why there were 5 waves down into green 5.  If this is the case then we should begin to see wave 2 of 5 make its move over the coming days as it snakes its way back up to the $20 region.

The final two possibilities are much less likely to the degree that they are not worth thinking about yet (but never say never):

• Wave 1 isn't done southing yet
• That 40% move up WAS wave 2

Bottom line: I think the move up in JNUG begins very soon and it's just a matter of whether to buy in near the open (after looking around a bit first of course) or whether 5 more waves down will occur first.  My top count at this point is the red count for two reasons:

• Sentiment is very bearish on metals and weakness in the broader markets makes people take a dash for cash.
• When sentiment for metals is this weak (or this strong against metals as the case for shorts), market participants become emotionally involved and stop thinking straight.  It takes a couple of big head smacks until they realize that the tide has turned on them.