First published Sat Jan 28 for members of ElliottWaveTrader.net: In mid-November, as most of the market was becoming quite bearish in the metals complex once again, I provided you with a path as to how the market can get even more bearish, and set us up for a bear trap, while I was noting that I was reducing my hedges:
In our Trading Room at Elliottwavetrader.net and in my live video sessions with our members, I have noted several times over the past weeks that the perfect bottoming set up would begin as the market recognizes a heads and shoulders pattern setting up in the GDX. And, many this past week were pointing to this “perfect” pattern, which they view as setting us up for new lows in the complex. In fact, it could be “too perfect” since the entire market seems to now be hyper-focused on how it is going to take us to lower lows.
But, my view was that this pattern could very well present the market with a head fake. I was viewing a break of the neckline as providing more confidence to the shorts in the market, as they would likely then press their shorts. However, I think there is a very strong potential for them to be seeing those shorts squeezed . . . Those shorts can certainly provide us with the fuel to begin our 3rd wave higher. While there is clearly no certainty in this potential, I have seen this happen so many times, especially when the heads and shoulders patterns looks “too good,” as this one does.