In the last Gold and Silver installment to our premium subscribers I talked about what to be on the lookout for with regards to the bulk of the stocks within this sector tracing out a correction that when all said and done creates a bottom of a cup and then works higher thereafter. 

Today I thought I'd share with you the second installment of the Gold and Silver report and want to touch upon what IF they aren't done yet bottoming yet. 

First off let's do a little bit of advanced technical analysis here. Time to time you hear me talk about Elliott Wave. I don't talk about it all the time but when I see stocks following that script I tend to want to at least mention it as it's an opportunity from an educational standpoint to share some knowledge with you all.

If you are one who wants a quick course in E Wave then this is it as there is a wealth of information within this report from not only a basic charting perspective but also that of an advanced charting perspective.

First off, for some it can be confusing. I get that. Let's keep it simple. Its all about 5's and 3's; just remember that and it'll keep you centered for the purposes of this conversation. 

In bull markets it's all about 5 waves up in a major degree when all said and done.

In bear markets it's all about 5 waves down of a major degree when all said and done.

Let's start with what a 5 waves down multi year bear market looks like. Take a look at the chart below of GLD while in a bear market. 

First off what I want you to observe is some basic technical analysis in the chart above with regards to the adage.

"Old resistance once broken to the upside tends to become new support to the downside"

Notice that when all said and done not only did we trace out a full completed 5 waves down multi year bear market but also look where we stalled out to the downside. See the long blue line? Its old resistance once broken to the upside ended up becoming new support to the downside.

I bring this up because  I want to take a detour for a moment because as we all know our current markets have been in a bull market cycle for going on 8 years and is one of the longest on record. We all know that at some point our markets are going to go into a bear market right? This leads me to the next chart with a question for all of you.   

Take a look at the chart below for a moment. When the next bear market starts where is "Old Resistance once broken to the upside tend to become new support to the downside"

Note: Bear markets are coined bear markets after they have fallen 20%+. So at some point IF IF IF IF (lot of if's in the future you know) our markets using the SPX as an example at some point were to go into a bear market and it were to retest old resistance turned new MACRO support much like GLD did ultimately that is a zone we could be looking at when the time comes.At this moment I nor anyone else on the planet knows IF this is going to happen. One would be extremely wise to employ one of my favorite trading axioms here.

"It's Ok to think, but let the markets confirm your thinking first" 

As far as confirming the thinking above? I'll save that for another day and another article. Ok now back to gold and silver. 

So what happens upon completion of a whole 5 waves down multi year bear market? Upon completion, according to E Wave theory we start a whole new 5 waves up sequence. Here is the big IF. 

IF we indeed started a new bull market cycle in gold and silver then here is where we MAY be when it comes to E Wave Theory. 

 Take a look at the chart below.

See the Blue box? Notice wave 1 to 2 is comprised of 3 (abc) mini waves down?

Now when we take a look at GLD  and apply the above diagram what do we see?We see us following that script currently.

This means IF (and it's a BIG if) we are in a brand new big picture bull market cycle then we are in a corrective Wave 2 and upon completing it, it's here comes a new leg up for the 3rd wave higher. Again, we take things one step  at a time around here , we project, monitor and adjust as we move forward in time based upon what the chart action is telling us.  

Now take a look at the chart below as to what that could look like IF IF IF we continue to follow the potential E Wave script laid out above.

As you can see we did indeed trace out 5 waves up for a big blue 1 as labelled in each chart.Notice what's happened since the completion of those 5 waves up? You got it, we've been pulling back ever since.  

Now here is where it gets tricky. Either we are bottoming out here in the form of a sideways thru time bottom of cup for the completion of wave 2 or we have one more leg to go to the downside in a classic ABC pullback.

If we do see a little bit more downside work that could occur in the event the recent lows don't hold its really nothing to be too alarmed about as it could probably be short lived but I just want you to be aware in advance so as to not be a deer in the headlights if you will because its also an opportunity to want to consider gaining some exposure on the long side with.

So that all said, let's add a few road markers to guide us as to where those potential stalling zones that we'd want to see get defended in the event there is another leg down to complete the ABC wave 2 pullback.

Take a look at the blue lines, the moving averages and the Fibonacci retracement zones. Those are the "What To Watch For" zones of stabilization in the event there is one more shake Nervous Nellie out of the tree move to the downside. 

So there you have it, all in "What To Watch For"  form when it comes to establishing a position or managing a current position in any of the above complete with  two potential road maps to guide us with one being IF we hold the bottom of a cup support zone from the 1st Gold and Silver report and launch higher and the other being IF we have one more shake the tree leg down as we move forward thru time.