First off, I want to say that the plan explained by Steve Hochberg in the video associated with the previous post (free sign up required) meshes well with how I see gold currently. The 1000 +/- level is very doable, folks. Not a given, but quite doable. That would close out investors’ fear from 2008 by having made a completed cycle on the rebound in greed.
In the short-term, gold was probably ready to bounce even before the war stuff hit the news yesterday. Sentiment had become just deplorable, with gold bulls puking left and right. The geopolitical thing is a negative, as it always is but the Hulbert HGNSI is quite a positive, as the gold timer community (ha ha ha…) plummets well into net short territory.
So, geopolitical aside (and I always take that seriously as a negative for gold because it gets the worst of the gold “community” back to pumping) gold can see some decent rally activity off of sentiment and the improved Commitments of Traders structure. But I think more downside may follow over the next few months. Then? Cyclical bull.
Meanwhile, I am using gold as a macro tool; probably the best macro tool I have when comparing it to other assets that are positively correlated to economies. Gold is just a tool around here after all; a tool for market evaluation and a tool for monetary value. It’s not an idol. When the ones who obsess about gold with wildly glaring eyes are back on the pump, take caution.
“There are worse things that could happen than filling a gap and scattering the wrong kind of gold bugs back out. Then it would be up to the longer-term charts to do the heavy lifting if the daily does fulfill this downside potential.”
The gap was filled, the top end of the anticipated support zone was reached and indeed, the wrong [i.e. momentum players] kind of gold bugs are scattering back out. The hard sell down on Thursday was very likely due in large part to the selling by traders with a fetish about gold as a geopolitical or terror hedge.
Individual investors are lathered up again and chasing the renewed stock rally, at least on a relative basis to their usual stance. This market sentiment indicator is usually a sign of impending market disturbance although timing is not finite with this data.
These two charts can be found any time you want in the public charts list linked above.
First is a view of the near all-in state of the average mutual fund. And this is before the most recent surge higher, as the data are delayed by a month. As with sentiment indicators reviewed weekly in NFTRH, this is a picture of an ingredient that is properly configured for a market top or correction, but not necessarily an indicator of one. A correction or bear market is coming, with only the timing at issue. Risk is rising with every surge higher.
Meanwhile, the hatred of gold and silver continues unabated. Unbelievably, there have been times when people fell all over themselves to buy metal in Central Fund’s vaults for 20% and even 30% premiums. Now they will not even accept a 6.5% discount.
A visual history of complacency and fear as seen by the 10-year spread over German Bunds
The one-two punch 2014 winter storms that battered the southeastern United States left $13.5 million in damages in Georgia alone and thousands of residents displaced due to burst pipes and power outages. I am one of the displaced. Three months after the flood, I’m still living out of suitcases in a hotel while my apartment gets rebuilt.
I’m ashamed to admit before Icepocalypse, I had the least comprehensive homeowner’s insurance. Why bother, I thought. This is Atlanta. The only blizzard this city’s seen in the
last decade is on the dessert menu at Dairy Queen.
But now, you better believe the first thing I’m going to do when I move back in is upgrade my policy to cover all and any acts of man and God — fire, tornado, sharknado, alien invasion, you name it.
It’s human nature. You can never truly prepare for the worst until you experience it first-hand. Then, and only then, do you go above and beyond to protect your health and welfare.
What better day than today’s predictable hard bounce to present the other side? If you believe the bounce and want to be a happy bull, just step along from this post. If you don’t mind considering other opinions or are like me in thinking 2014 stands a better than even chance of being the year that the current cycle ends, check out EWI’s 24 page report by clicking one of the graphics below.
We have come to a point in this cycle where we are supposed to feel ashamed for having bearish views or opinions. Prechter’s wrong again after all. The thing is, even a bull could use some alternate opinions. I am not talking about a market crash. Please. I am talking about a macro view. That should be someone’s basis for operation. I have my views and they have not changed since early last decade because the things I had negative views about have not only not changed, they have intensified and shifted (commercial credit replaced by official credit). But there is still a debit waiting out there.
We who hold a negative big picture macro view were stupid until the 2008 liquidation made us geniuses. Now we are stupid again and trend followers are smart. Wash, rinse, repeat. EWI is an affiliate and I make a commission on sign ups to their services. So consider this a promo. Also consider that EWI was founded by someone who was an influence of mine. So it’s not just a pitch. We’ve only recently gotten with the idea of partially funding all the free information here with ads, like most blogs have routinely done all along. Consider this an ad that I wholeheartedly recommend. And the darned thing is free for crying out loud.
Think about the year long topping process of up and down spikes on the HUI Gold Bugs index in 2011. Now think about things that may be working on replicas of that activity (hello US stocks) and things in the mirror that may be working on the inverse of it (hello grinding and dispiriting gold sector).
Now think about how long these processes take to play out and the patience involved. Also think about trading or defaulting to cash, because at times of change the volatility is something to behold (going both ways).
This is not an EWI promo, just an observance. I am listening to he of the infinite patience and big picture perspective, the thoroughly lampooned (by bull wise guys and emboldened trend followers now promoting their own genius) Robert Prechter speak about hope and fear.
First, we’ll insert our weekly chart of the S&P 500, for reference. At the end we’ll include the monthly cycle chart and a sentiment cycle chart from Sentimentrader.com by way of NFTRH 285. People can then form their own conclusions.