Over the last several weeks, I have seen those that were absolutely certain back in September and October that gold was going to drop below $1,000 now turn into major bulls in the metals complex. The silver rally especially has gotten the attention of many metal’s traders, and has everyone now all bulled up for a major break out in the complex.

It really is amazing to watch how price extremes dictate the manner in which investor’s views are driven about a market. Yet, as Roy Prassad, one of our more astute members at Elliottwavetrader.net, noted: “the goal of Elliott Wave is to analyze sentiment, not participate in it.”

So, just as we were looking for bottoming back in September when most were extremely bearish and calling for the certain drop in gold below $1,000, I am now looking for topping in the coming weeks. And, GDX is my clearest guide.

If one zooms out on the daily chart, you will clearly see that the rally off the September low into the October high was 3 waves up, followed by a corrective 3-wave pullback. After that 3-wave pullback completed, we then proceeded to rally up in 5 waves, for which we seem to now be approaching completion. To me, this is a classic a-b-c corrective rally. Moreover, this a-b-c rally has taken us right into our resistance target between 21.50-22.30.

As I said earlier, this is the clearest guide I have in the complex, and the main reason I am still looking for one more bout of weakness in the coming months which can point us down to the 16-17 region for a 5th wave in this c-wave down. Should we break out through the 22.30 region, I would have to reconsider my perspective, and view the potential of a leading diagonal off the recent lows. But, as long as we remain within our resistance region, it provides us with a well-defined zone in which we can maintain a strong short-term bearish bias.

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