Hi ,

A lot of people expected something to happen in September that did not ultimately happen. There were all kinds of wild theories floating around, and many of them had no basis in reality whatsoever. But without a doubt, some very important things did happen in September.

Extraordinary speculative profits are possible now with minor risk if you verify the truth, properly use logic and keep it private. The establishment will continue to make war and milk the public. If you understand how they are doing this, you can protect yourself and profit.

Amazingly, more and more people are becoming bullish of metals and miners again. So, are we now setting up the final decline due to the increased bullishness? I think so. But, nothing suggests to me as of the time of my writing this update that the top of this rally has clearly been seen before we drop to those lower lows.

Last weekend, I was on the lookout for a b-wave pullback. Specifically, I noted that “we can see a b-wave pullback which maintains over 106.85GLD and 13.40GDX before we head higher.” During the past week, as GDX was declining, I noted in our Trading Room at Elliottwavetrader.net that we were likely setting up to break below 13.40, but the structure does not suggest that we are likely breaking down yet to lower lows. Rather, I lowered my support level to the 13 level, and, in fact, bought a long trade – as noted in the Trading Room – when GDX was at 13.33, which I exited just over 14.

Furthermore, while silver was the clear tell that we would head lower last week, as it exhibited a micro 5 wave decline off the prior week’s, silver never completed a larger degree 5 waves off that high. I even sent out updates noting that if silver would have completed that larger degree 5 wave move down, it would have turned me much more defensive. But, silver never completed that 5 wave structure, and has kept the door open for a move higher before we drop to lower lows. But, in order for silver to open that door wide open, we will need to see a move through the 15.25 level before we break 14.69. As long as we remain below 15.25, silver still has a potential bearish pattern in place. So, as I noted in my Live Video at Elliottwavetrader.net on Friday, I was going to take a small short in silver with a stop at 15.26, which, at the time, was risking about 8 cents on that trade.

When I view the GLD, I have to note that we have come to the top of what may be a (b) wave in the final run to lower lows. But, I have no clear 5 wave move down off that high. Should I see one more drop towards the 109.25 region, I can make an argument for a leading diagonal down, which if followed by a corrective rally, would setup a potential short attempt with a stop placed at last week’s high. However, should we see last week’s high taken out to the upside, with follow through over 112, then my minimum target becomes 114, with the potential to extend up to the 117 region.

As far as the GDX is concerned, the after-hours action from this past week’s high can arguably be counted as a 5 wave decline. Since it was after-hours low volume action, it is hard to be certain that it was, in fact, a 5 wave drop. So, I attempted a short trade on GDX from the Friday rally high, but did not get an impulsive decline from that point, which had me exiting that trade after making some “lunch money.” In order for GDX to convince me we are heading to lower lows, we will need to break 13.60, with follow through below 13.20. That would have me looking for a target of 11. However, if we can hold over 13.60, and take out last week’s high, we are looking to strike at least the bottom of our target box on our daily chart in the 15.50 region.

So, the market is giving me some mixed messages right now as to whether this rally can continue. But, it certainly has left us with strong guideposts, as noted above, as to what we can expect if certain levels are breached on both the upside and the downside. This leaves us with pretty good trading cues for the upcoming week. And, as I have noted before, once the market makes it clear which of the targets are going to be struck, I will send out a Market Update to all members at Elliottwavetrader.net.

Finally, I would like to remind all of you that like to trade the triple leveraged miner funds (JDUST and JNUG), Larry White, our Elliottwavetrader.net analyst that provides trading entries and exits for these instruments, has total returns in excess of 130% in 2015. So, if you want to trade with Larry, please sign up before October 1, as the rate for his trading service is going up from $49 a month to $79 a month.

See charts illustrating the wave counts on the GLD, GDX and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GLD-GDX-YI-20150928840.html.

By Avi Gilburt
ElliottWaveTrader.net

From a purely mental perspective it's a snap. We know when the low will occur and the gold market will turn from a bear to a bull. It will happen when most market participants expect a higher future price than the then spot price plus the cost to carry. Ludwig von Mises, in Human Action, and Murray Rothbard, in Man, Economy and State, explained it. Whenever the current price and expected future price differ, entrepreneurs will seek to profit by buying now when they expect the price to increase, and selling now when they expect the price to decrease. They will do this until prices, including the cost to carry, become equal and thus no further opportunity to profit exists.

Today’s expectation of the future price is effectively all that determines the future price. Fundamentals are irrelevant. All prior price action is simply historical data and has no effect on the future price. This follows from the economic law that all value is subjective. When it comes to calling the low in the gold market, today's actions and the future price trend are determined by what market participants expect the future price will be. That expectation is a subjective judgement. It cannot be analysed by adding, subtracting, multiplying or dividing. We can only use ordinal numbers to analyse a subjective judgement. We can only know that A is preferred over B. We cannot know the distance between A and B.

This may seem like a severe handicap. It is not. Since 97% of everything written about economics uses computed mathematical data, we now know what percentage of opinion will be wrong: 97%. That means we only need to concern ourselves with the remaining 3%. Of that remaining group, what percentage focuses on the only relevant issue: market participants' subjective judgement concerning the future price of gold? What percentage can even properly define who to include as a member of the market participants group?

All that we've discussed so far has to do with your mental knowing, your mental understanding. This is vital for market timing, but it's only the first step. Intellectually understanding what drives the market and what in particular to observe and analyse before taking action is crucial. Without this understanding, you may never even attempt to act. But you also need emotional knowing, which is the confidence inherent in mental knowing coupled with sufficient desire to act. It is the fuel needed for human action, for the potential to successfully trade to exist. Then there's the level of knowing that comes from taking successful physical action. This level reinforces mental and emotional knowing. To assist all three levels of understanding I use four criteria for calling a low in the gold market.

1. An extreme reading in negative sentiment indicators. This is now, September 20, 2015, at the same level it was when gold sold for $260 an ounce in 2001. I mark these criteria as met.
2. A break in the general securities market. This is needed for new capital to enter the gold market. This is provided by a bear market in the general stock market. The DJIA is now under its previous 10 months' trading range. Last month’s worldwide panic stock market down move marks these criteria as met.
3. Specialist short covering. This will happen when the specialists' books have no sell orders and no new sellers are induced to enter the market when specialists drop the bid. It is when the bid price is less than the existing owners' retention price: the price at which they would be willing to buy. This has not yet happened.
4. Ending wave pattern. This is a subjective confirming indicator. Alone it has little predictive value. But it is very helpful for organizing and tracking alternatives. A fifth wave five-wave diagonal triangle consisting of five contracting waves that divide into three waves each would be confirming. So might a standard fifth wave. We do not have a confirming ending wave pattern yet.

Sentiment indicators are good contra-indicators. If people tell you they think gold shares are going lower, they have already sold. They say this in order to justify what they have already done. So, if 90% say gold is a bad investment, only 10% are still able to sell. Once the bid price falls below the retention price of this last 10%, there are zero sellers and this is the low marking the end of the bear and the start of a new bull market. The first leg up can be entirely short covering, but in order to have a sustained up move there must be new buyers and that requires a new bear market elsewhere. It looks like we will get that when the DJIA makes a new low below the earlier panic low in August.

Dow Theory Letters, published since 1958 by the pre-eminent author of financial newsletters, Richard Russell, sees a new bear market for USA shares. This is a leading indicator for gold shares. Now we're just waiting for the market to show an ending pattern and specialist short covering. A sharp drop to or below 1,000 on the bullion would be ideal.

I hope this short introduction will motivate you to study further the two books referenced and Sun Tzu Meets Jesse Livermore.

Market Commentary (above) by Arthur Fixed

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