Precious Metals and Mining Stocks Were Up Big Yesterday.  Is the Bottom “In”? 

Gold, Silver and Platinum were up big again on a “Fed” day yesterday, a recurring motif in recent quarters.  Yesterday’s bounce was fairly large, especially in many of the large and mid-cap precious metals mining stocks.  For many months I’ve been projecting that a large cycle trough was due near year-end 2017, so is the bottom “in” on precious metals or not?  Let’s take a look.

The weekly chart  (below) of the continuous Platinum PL contract is showing my latest combined signaling system, which features momentum, trend, sentiment, and divergence signals all on one chart. Along the bottom of the chart are two measures of market sentiment.  The first is a traditional indicator of Large Commercials current positioning, as it relates to their most bullish and bearish levels during the past 6 months.  The second indicator is the JB Sentiment indicator (a Genesis Trade Navigator exclusive), which shows the current percentage of bulls among retail traders.  This indicator is also known as the Daily Sentiment Index, or DSI.

Almost always, at a large cycle trough, Commercials are heavily bullish and Retail traders are heavily bearish.  The January 2016 and December 2016 lows are perfect examples of this phenomenon, as shown on the weekly chart:  (click on the charts to enlarge)

The following is a daily chart Platinum, with an additional sentiment indicator showing.  Notice that the Daily Sentiment Index (DSI) is quite low, having reached a reading of 20 on December 12.  Sometimes that is a low enough reading to support a decent sized rally (short-squeeze).  However, look at the current positioning of the Large Commercials.  On a 6-month look-back, they are still net short, and were heavily short as recently as December 7.  Also showing on this daily chart is an additional faster-acting custom sentiment indicator (Willco), which displays the current Commercials positioning as a percent of Open Interest.  Notice that Commercials are heavily short today using this important measure.  Commercials are therefore not in an optimum (heavily long) position yet for a major low.  A similar sentiment-spread condition also exists currently in Gold and Silver.

The Willco indicator can change fast though, so we’ll be looking carefully at these indicators and signals on Gold, Silver, and Platinum over the next few days and weeks, because Commercials are likely to reach the heavily long threshold in association with this 21.7-month cycle trough.

As for precious metals mining stocks, they have a tendency to lead the underlying metals out of large cycle troughs, and during major bull runs.  And juniors have had a historical tendency to lead the large caps.  Yesterday the mid and large-cap PM miners rallied big, but many juniors did not.  These next few days and weeks should be fascinating in this sector.  Will the sentiment spread display the usual simultaneous Commerials-long, Retail-short condition at this large cycle trough?  And if the underlying metals make one more low toward year-end, will the precious metals miners make another low together with the metals, or will they “stay up” and then lead higher starting early 2018?

Summary:  The sentiment spread between Commercials (producers) and Retail traders is not suggesting that the low is “in” on precious metals yet.  However, the proper spread could develop quickly.  Also, some precious metals miners appear to have bottomed for this cycle, a strong sign for an uptrend in the sector in 2018.  Stay tuned.

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Sid Norris – ElliottWavePlus.com