Avi's [GLD] target through the eyes of [GDX]

First off I want to say that nobody gets things right all the time and that goes double for predicting future herd movements.  In fact I think people go through waves of being a hot hand and being a cold hand.  It has to do with human emotions which are built into us and thus very, very hard to defend against.  When we are winning, we are invincible.  When we are losing, God has singled us out for Job-like "unfair" punishment. 

Once euphoric, pride and arrogance blind us to the potential downside which is the ever present risk factor.  That's when we are most likely to get clobbered.  Once clobbered, with pride and arrogance back in check, we see more clearly for the next wave of prosperity.  These swings take the form of an EW chart.  Nobody is immune! 

But some EW charts have very strong trends with minimal pullbacks while others are more extreme.  So my goal is to try to avoid the big pullbacks in my own performance by strongly considering the risks (and more importantly, the trigger points for selling) while I am winning and focusing on reward and again the buy signals) while I am retracing.  This helps avoid selling the bottoms and buying the tops.

The best way for me to do this is to formulate my own counts and then follow other experts and compare  their counts against mine.  This tends to show model weakness where it exists (be it in their model or in mine...).  The two big opposing counts in gold right now are EWI and Avi Gilburt.  Both predicted a move up in M+M into current levels.  EWI thinks it's just picking up steam and we need to retrace upwards to the prior 4th which should take a couple months.  Avi viewed that we would rally into the start of the year but that we had to make a lower low which he listed as $95-$105 in GLD.

In this article (which is worth signing up to for a free account in order to read), Avi predicts a move to GLD "with an outside potential to see the 118/119 region".  That was on Nov 16th.  GLD then rallied to just shy of $119.  Since then the action has been per below.  In other words, the early Nov bottom was wave 3, the bounce to 119 was wave 4, the move down to Jan 2 was 1/5. Friday's move was 2/5, and in the coming days we could find 3/5 unfolding and then 4/5 and finally 5/5 with GLD falling into Avi's price target of 95-105.

The model below is what such a short term move could do to the miners.  In order to understand the bigger count here, wave 1 up was when gold (and thus miners) began to take off as the government began to massively intervene in the economy in order to save us from a dot bomb collapse in 2001.  Its peak is shown in the chart below as wave black 1.  The A wave bottomed in mid 2008, the B wave peaked in 2011 and the C wave is very close to a bottom right now.

If this count is correct, GDX would ideally fall below the blue line which would be C of 2.  In this model we are still working on 5 of  C and in fact 1-2-3 and now 4 of 5 have all completed with a nice 3 wave zig zag correction which has rallied exactly 38.2% of the last big swoon.  We will know this model is bust if GDX goes up into the region of green 1 which is fixed at $21.93.  On the GLD chart the model is bust above the recent high of $119.

If on the other hand M+M begin to sell off strongly from here, we have to suspect that the model above is possibly correct.  There remain other options which I will discuss if the chart morphs in such a way that their likelihood increases.

So the chart right now is totally on the fence and smart traders will wait and see which way the herd decides to go.  Some kind of gap up over the top rail would tell us that the herd decided to jump that fence instead of going around. So I view the top rail of the grey parallel below to be very, very important resistance.  I'll lean more bullish if it can break out of that and then go even more bullish M+M if GDX breaks out of (and is able to hold) $21.93.

Having said that, one way or another non traders should still be cost averaging into something golden that does not have a time value associated with it.  For most people I think GDXJ is a great choice.  If it swoons as shown in the chart below, quadruple down on it because that will be a very, very significant low.

Not that stories on why moves are happening are important but they can be entertaining.  The herd loves a good story! So in the name of entertainment only, I could see the following story happening:

• based on income inequality, the fed begins talking about raising rates in 2015.
• markets begin to panic because low margin rates are the life blood of this debt Ponzi and everyone on wall st knows it.  As a result everything goes down hard including M+M.
• Yellen sees the suddenness of the swoon, gets fearful and blinks.  In an attempt to buy market calm, she says the fed can keep rates low for more time if "conditions warrant" (meaning if the market panics more).
• The markets begin to rally but then something unexpected happens: interest rates continue to move up and in fact accelerate to the upside as the global US treasure buyers realize that the fed can never increase rates without a monster market collapse.
• Faced with rising cost of margin debt service, the market goes back into deleveraging mode and selling accelerates into the self reinforcing downward deflationary spiral.  UVXY goes en fuego as latent market fear jumps to the surface.
• M+M decouple from the markets and move up sharply from GLD low of ~$100 into a big new multiyear bull market based on the knowledge that the federal reserve is losing control of the bond market.

Again, it's useless to predict the news so that should not be considered a "prediction" but the above scenario would not surprise me at all.