Avi Gilburt Talks ETFs, the Fed, Bear Markets and More

[This article is part of a new series from etf.com highlighting financial advisors.] 

Avi Gilburt is founder of ElliottWaveTrader, a live trading room and member forum focusing on Elliott Wave market analysis. etf.com's Kent Thune talked with Gilburt about his ETF strategies, his outlook on the banking sector and precious metals, and how he sees the potential for a prolonged bear market ahead. 

etf.com: How do you use ETFs in your trading and investment strategies?  

Avi Gilburt: With the advent of ETFs, investors are able to gain broader market exposure without the risks of individual stocks. So, we provide analysis for most of the major ETFs in our various services. I personally track the GLD, SLV, GDX, IWM, TLT, EEM and USO ETFs mostly for trading purposes. 

etf.com: You’re an accountant and lawyer by training, but you’ve said you came to the realization economics and geopolitics fail to assist in understanding how the market works, which allowed you to view financial markets from a more accurate perspective. Would you provide some details on this with a current example?  

Gilburt: For those who may not know my background, allow me to explain the qualifications with which I initially approached the markets. I graduated college with a dual major in economics and accounting. I went on to pass all four parts of the CPA exam in one sitting, something that only 2% of those taking the exam are able to achieve.  

I then went on to complete law school in two and a half years, and graduated cum laude and in the top 5% of my class. I then went on to NYU for a Master of Law in taxation. I became a partner and national director at a major national firm at a very young age, where I worked to organize very large transactions. So, when I tell you I understand the fundamentals of economics, business and balance sheets, you can believe me. 

Yet when I approached investing in the market with all this background of understanding businesses, economics and balance sheets, I was no better than the average investor, and sometimes even worse. It wasn’t until I learned more about the psychology of the market that I began to learn how to maintain on the correct side of the market the great majority of the time.  

In effect, I had to ignore everything I learned about economics, businesses and balance sheets, and predominantly focus upon investor psychology to make more sense of the general market action. And many of my money manager clients with similar backgrounds have noted the same. 

There are dozens of examples I can provide just off the top of my head. But I’ll give you four very stark examples from four different markets.   

Back in spring 2011, I outlined my expectations for a bottom in the US Dollar Index (DXY) in the 73 region and was calling for a multiyear rally to the 103.32 region. That was an expectation for a 40% rally in the DXY, which is an extremely large move in the DXY. 

But what made this market call that much more outlandish at the time was that this was during a period when the Fed was engaging in aggressive quantitative easing. At that  time, the market was certain that QE was going to make the dollar crash. I was told, "You can't fight the Fed," by all those who thought my call to be nothing less than ridiculous. 

As we now know, the DXY bottomed at 72.70 in May 2011 and rallied over the coming six and half years until it topped at the 103.82 level, or 50 cents beyond my long-term target, and then went into a four-year pullback/consolidation, as per our expectations.  

Another example was seen in November 2018. At the time, the Fed was strongly signaling its continuation of raising rates. But, as TLT was approaching the 112/113 region, I outlined to members that I was going to be a buyer of TLT in the 113 region. Again, I was told the Fed was still raising rates and you cannot fight the Fed. As we now know, TLT bottomed at 111.90 and proceeded to rally into 2020 toward the 179 region. 

My next example would be in the gold market. For those who remember summer 2011, gold was rallying parabolically, with some days seeing $50-plus daily gains. The market was so incredibly bullish that the only argument you would read about among analysts and talking heads was how far beyond the $2,000 mark gold would certainly rally.  

Yet in August, I published my topping expectation and noted, “Since we are most probably in the final stages of this parabolic fifth wave ‘blow-off-top,’ I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time.”   

As we now know, gold topped within $6 of my target one month later. Moreover, within the comment section, I was asked about my downside targets even before we topped. I noted the $1,000 region, that with potential we could extend down as deep as $700. And in December 2015, as we were approaching $1,050, I wrote this to my clients and the public: 

“As we move into 2016, I believe there is a greater than 80% probability that we finally see a long term bottom formed in the metals and miners and the long term bull market resumes. Those that followed our advice in 2011, and moved out of this market for the correction we expected, are now moving back into this market as we approach the long term bottom. In 2011, before gold even topped, we set our ideal target for this correction in the $700-$1,000 region in gold. We are now reaching our ideal target region, and the pattern we have developed over the last 4 years is just about complete. . . For those interested in my advice, I would highly suggest you start moving back into this market with your long term money . . .” 

In fact, the night that gold struck its low, I was telling my clients I was buying that night. I bought this tranche from Doug Eberhardt, who is an analyst on Seeking Alpha and who runs buygoldandsilversafely.com, and he noted the following about us: 

“I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. . . Your timing on buying the dips is uncanny Avi! People should be aware of this.” 

As an aside, we also caught the low in silver at $12 in March 2020, and Doug then wrote this to my clients: 

“Avi has the magic touch. Listen to him . . . And I want to explain to you all what Avi did for you. He got most of you to buy the metals before the premiums shot up and before everyone ran out of product. This is the 2nd time he has done this and kudos to him for doing that for you.” 

The next example I want to highlight was when I suggested to my clients to buy the SPX as we were approaching our long-term correction target in the SPX at 2200SPX. For those  who remember that time frame, the market was involved in one of the scariest crashes of modern times. In fact, I believe the fear exceeded that which was experienced into the 2009 market low.  

We saw the highest rates of COVID deaths, record unemployment, national economic shutdowns and absolute panic throughout the markets. Yet the analysis told me to ignore all that fear and all the bad news and fundamentals, and simply buy at our target. As we now know, the market bottomed at 2187, or 13 points just below my target, and began one of the strongest rallies in history, which confounded all those following the fundamentals. 

etf.com: You recently warned of bank weakness, and you were early to call out this potential problem before the March 2023 Silicon Vally Bank crisis; how do feel about the banking sector now? Do you see a buying opportunity, or more problems to come?  

Gilburt: Personally, I would not buy any bank stocks. The banking industry looks sick under the hood. And it was the stock charts that clued me into this. So I hired a banking analyst about two and a half years ago. And our goal was to review the big banks for their true stability, as well as to look for the top 15 banks we could find in the U.S., out of a total of approximately 5,000 banks.  

This process took us a lot longer than we expected. It took us over a year to be able to identify those top 15 banks. And we then rolled out a service around this called saferbankingresearch.com a year and a half ago. Our goal was not to find the best bank for investment purposes; our goal was to find the safest banks in which to house your hard-earned money.   

But as we continue to review more and more banks, we are seeing some terrible rot in their balance sheets. As you noted, anyone following our public work would not have been shocked by the SVB failure. We publicly highlighted the exact issue that caused SVB to fail three weeks before it happened. And as one of our money manager clients noted: 

“A colleague said, ’No one saw this issue with the banks.’ I just laughed and said, ‘Avi from EWT was all over it.’” 

etf.com: You called a top in the gold market in 2011. Where do you think gold and other precious metals are going now?  

Gilburt: To put it simply, I’m waiting for the market to provide us with a setup for a “melt-up,” with a minimum target for gold at 2428, but with strong potential to extend toward 2700. The manner in which the melt-up takes shape will provide me with the specific target over the coming two years. 

As far as silver, it seems to be developing a setup similar to 2010. If you go back and look at that time frame, you’ll see silver began a parabolic rally at that time, and I’m seeing a similar setup over the coming months for such a rally to begin. 

etf.com: You’ve also raised the idea that the next decade and beyond could bring a prolonged bear market. What do you mean by that, and how you might manage that from an investment perspective? 

Gilburt: This is based upon our Elliott Wave methodology, as applied to a 100-plus-year S&P 500 chart.   

Elliott identified that markets move in five waves in the primary trend. Waves one, three and five move with the primary trend, and waves two and four are countertrend.  

When we zoom out over the last 100-plus years, we recognize that a very large degree second wave began with the 1929 market crash. Since that time, we have been rallying in a third wave off of that low.  

Many years ago, even when the market was below 2000, I’d been expecting a major market top to that third wave between the 5000-6000SPX region. While we may have come up short at the 4800 region high in late 2021, I would still prefer to see the market move over 5000 before that high is struck. 

But once we confirm that high, the structure suggests we’ll enter a 13- to 21-year bear market. Elliott also outlined something he called the theory of alternation. He noted that corrective waves alternate in their specific structure.  

So, if the second wave is a very sharp and relatively quick decline, then the fourth wave will likely be a long, drawn-out event. Since the second wave that began with the 1929 market crash only took about two years, I expect this degree fourth wave will take much longer. 

I then look to the fourth wave of one lesser degree, and that was the market correction which began in 2000 and took the market sideways until 2009. So my assumption is that if a fourth wave of one lesser degree was a correction that lasted approximately nine years, the fourth wave of one higher degree will likely last longer.  

My minimum target for the upcoming correction is 1800. But there’s a strong likelihood we can decline all the way down to 1000. Again, it will likely take a long time and have many ups and downs with multiyear declines and multiyear rallies.  

Clearly, my goal will be to raise cash before the multiyear declines, or even short the market as the setups develop, and then invest for the multiyear rallies we expect at the lows of the declines.