Crunch time for my JNUG model. Important post for Metals and Miners followers (with a touch of S+P to boot).

First let me say that according to my model, 2015 is likely going to be a fantastic recovery year for metals and miners.  If there is any negative tone to my post (see below), it is very short term (weeks not months).  But with the volatility we are getting these days, especially playing the leveraged juniors, real money can be made (and real losses can be saved) by playing the short term moves.  The M+M beat down since 2011 has been extreme and it has not been just gold and silver.  They were simply the canaries in the deflationary coal mine.  Oil got hit.  Nat gas got hit.  Copper and Iron got hit.  You may or may not think that gold is needed in the economy but nobody can argue that copper is needed and Dr. Copper (as Wall St. likes to call it) has gotten slaughtered since 2011.  While the copper metal chart is not as dramatic a break down as the copper miner's chart, I think that this is because the copper miners chart represents earnings and earnings have to take into account cost of doing business.  In other words, inflation.  So the copper price has not collapsed like this in real terms but it clear has gone down more on an inflation adjusted basis than its spot price would seem to indicate.  Deflation, it seems, has not hit all sectors at the same time or equally.

In any  case, here is my prior post on M+M which indicated that we should see 5 waves down, perhaps to an inclining double bottom.  The fact that JNUG just reverse split 10:1 and the fact that TDAmeritrade charts have not handled this transition well means I will use GDXJ instead below. 

As you can see from the model at the link, I expected 5 waves down which could end up with a short stroke failed 5th.  We are apparently near that today and I must say that I played that 4th wave turn very nicely even being so bold as to flip short into JDST for most of the way down this afternoon.  In fact, I currently only count 3 of 5 but I still bailed on JDST as it fell through 21.90 because the is where I counted 5 waves up (in JDST) to be complete.

IFF my model is correct then we should be very near a GDXJ bottom here.  It could also continue going down tomorrow and break below the lower rail in a 5th of 5 but then it should move back up very quickly into the channel and head for the top of the channel rapidly IFF my short term model is correct.

I say "should" and "IFF" here for a reason!  EWaves do not tell you what will happen, they point out what is most likely to happen and only then if the observer takes the big picture into account.  When the herd wakes in the morning will it go to the water hole to drink or will it do that in the afternoon today and first go foraging for food in the AM because late last night was the time to get a drink?  What happened in the past does in fact help predict what will likely happen in the future.

In any case, the model from my last post is playing out in an EW-legal manner but I don't like the size of that supposed 4th wave and I don't like the speed at which 3 of supposed 5 played out.  Because of these things I am still very suspicious that Avi might have gotten the count right.  Avi's article was from Dec 18th.  I put his count and his predictions on the chart below and I do have to say that I like the way this looks in general.  The fractal fishhook(tm) is pretty common (a big fishhook followed by a smaller one) with wave 5 of 5 finally falling below a line drawn between [1] and [3].

In any case, we are about to find out if his count is correct or not and despite the fact that the GDX/GDXJ chart played out per my model (which would suggest a strong bounce up from here) I am not betting against Avi's model.    If Avi is correct then that orange support line will break down during wave iii (a 3rd of 3rd).  A gap down there would be the signal to buy JDST again and then look for something to play out similar to shown below.  It could go into the first 1-2 weeks of January.

If the above scenario plays out then the chart below suggests what GLD might look like as well.  What we see here is a very slightly narrowing channel with 4.5 rail bumps put in.  So in fact, my model might still play out with this being a short stroke 5th.  If GLD goes from here to above 117 then I have to flip back to my own count as being the primary but for now I think Avi's GDX count, which also implies a throw under GLD target of $104 (very near the $105 target I have mentioned in these pages many times of late).  This this happens, the first buy signal comes after the throw under and then break back into the channel.  The second very powerful confirmation would be a break out of the top channel line as shown.

At this point one also has to ask this: IFF Avi gets the count right on gold and miners (which is not confirmed yet by the way), will he also end up having the right world view on the stock market in general?  Typically I find that when a person is the hot hand, they are the hot hand across the board.  Their world view is in synch.  So if Avi is correct then we are still finishing up the 5th wave of a larger 3rd wave up with S+P target of 2300-2500.  This move would kick TVIX and UVXY in the stomach.  Yes, a 4th wave will come after the 3rd but UVXY could be at $8-$12 by then if Avi is right.  As I have said before in these pages, I would rather be long something than short because the market treats long plays better than short plays in general.  Also, both EWI and Avi model higher commodity prices in 2015.  So until we find out if Avi's count for the S+P is correct, I will want to focus on catching the bottom on JNUG.