As most of you probably know the largest rallies occur during bear markets. They tend to be very aggressive and powerful. This is how one can tell the difference between a countertrend rally in a bear market and a rally in a new bull market. I’m going to suggest that the gold market is no longer acting like the typical bear market. Let me explain.
Notice how during every bear market rally over the last 3 years, the 2nd daily cycle, and sometimes the 1st daily cycle, launch higher very aggressively turning traders bullish very quickly. Once sentiment reaches 40 to 50% bulls, the rally runs out of steam and the next leg down begins. Typical bear market rally type behavior.
That’s what bear market rallies do. They rally fast and hard and get traders bullish quickly. The job of a bear market rally is to reset sentiment so the next leg down can begin.
Source: Sentimentrader.com
As this rally began back in July my assumption was that it would just be another bear market rally. However, this is not acting like the typical bear market rally. Instead of launching aggressively higher and quickly converting traders over to the bull camp, this rally seems to be doing everything it can to keep traders either on the sidelines, or short. Instead of the typical aggressive countertrend rally, gold has entered a triangle consolidation pattern. That is a character change from what we’ve seen in the past.
Also of note; gold is 11 weeks into this rally and sentiment still hasn’t even been able to rise out of excessive pessimism levels. If this is a bear marrket rally it’s not doing what it needs to do to reset sentiment, and generate the fuel for another leg down.
As a matter of fact, I would now argue that gold is starting to behave more like a bull market climbing a wall of worry, than a bear market rally trying to generate enough bullish sentiment for another leg down.
As I noted, the current intermediate rally will be on week 11 this week. If gold can continue to rally and make a higher high above $1169 for 2 or more weeks then this intermediate cycle will become right translated. Gold hasn’t generated a right translated Intermediate cycle in 3 years. Once it does the odds will increase exponentially that the bear market is over.
Looking at the long-term charts I have noted in the past that gold has a habit of coming up slightly short of traders targets. In 2011 everybody became convinced that gold would reach the magical $2000 level. It came up a little short and caught everyone long. I think it’s safe to say the bear market has convinced everyone that gold is going to reach $1000 or lower. I wonder if gold didn’t just throw the bears a curveball also and come up a little bit short at $1071.
Now take a look at the long-term mining index charts. The HUI dropped just far enough to test the major support level at 100…
… and the XAU tested its 2000 low.
This is how all bull markets start. No one believes that the trend has changed. And the more destructive the bear market has been, the harder it is for traders to accept that something has changed. The stock market bottom in 2009 was a classic example. It wasn’t until well into 2010 that traders started to warm to the idea that maybe a new bull market had begun. By that time many months and many percentage points had already gone by. And then right about the time traders started to get bullish they were hit with the flash crash in 2010.
I’m going to suggest that something similar is likely to happen in gold. If this is the start of a new bull market, and I am starting to lean in that direction, then we should see this rally continue to chug reluctantly higher, keeping as many traders on the sidelines, or short as possible. Then once it becomes undeniable that a new bull trend has started we will get another vicious pullback that will convince everyone that the bear is still alive. But those that know what to look for will realize that pullback will be the last good buying opportunity as the new bull market gets underway.
Remember: the more destructive the bear market is, the bigger the bull will be that follows. When viewed through the mining indexes, this has been one of the most destructive bear markets in history. It’s going to generate possibly the largest bull market any of us will ever see.
How many times have you called for an end to the bear market in commodities in the last few years? Where is the capitulation washout / mass bankruptcies in oil and gold for that matter? I quit playing that game in 2014 and my account balance is far healthier as a result. 5% in physical silver but that’s it. A once in a century deflationary bust is still in play. No one alive investing today has experienced it.
The three year cycle low in the CRB wasn’t due till this year. I’ve been trying to spot bear market rallies. For well over a year I was one of the few people warning that gold was going to make it back to 1030 (the 2007 C-wave top) But that didn’t mean there wouldn’t be counter trend rallies. And just because I’m trying to trade a counter trend rally it doesn’t mean I was calling the final bear market bottom.
Now the CRB is in the timing band for a major multi-year cycle low. The dollar is making lower lows and lower highs.
Now I’m ready to try to call a final bear market bottom. It either occurred in July or it will occur in November or Dec. but I’m leaning more towards the bottom having already occurred this summer.
Yes, we’ve heard it all before with regard to bear market bottoms. Also remember how bullish this site was when GDX was around the $50+ per share range with the Model Port investing in leap calls on GDX calls as well as SLV calls that were supposed to eventually make everyone rich? 🙂
This week’s report all sounds very logical…but the market doesn’t care how logical a report sounds….there is a 50% this report is correct, and the bear is over. Hope for the best, but still hedge for the worst. 🙂
We only had a 6% position in Leaps. That was never going to break anyone.
Are you sure it was only 6%?
I also recall a 10% position in TVIX that got cut in half. All these “tis but a scratch” losses add up although I could haveorn the LEAPS were more than 6% but will check my records. Could have sworn that is….editing on phone not working so well.
90% of traders are always wrong at major turning points.
Yes HUI is ready for a bear market rally, I would like to see 150 at least. On the bull market restored option you are 3 years too early Gary Remember big complex structures crashes in slow motion (like US economy), interest rates and bonds must go bust before a new big bet in Gold from Mr Market.
If gold forms a right translated intermediate cycle and a higher high then the bear market is over.
The other scenario is we get a 300 point drop in the market and money pours right back into the wall street favorites … aaple amazon tesla Chipotle Netflix ibb etc
WILL .. in nxt 10 days.. GOLD.. escalate .. to 1500 aprx ???
Hopefully not as that would be bear market rally type action. We need gold to grind higher and keep everyone doubtful.
1996 top Gold falls 40% and bottoms Ag 1999.. and rebounds 35% to aprx 50% retracement. To fall back and double bottom in Feb-March 2001.. that is little over 1 yr and a half later. That is a possible scenario. Will see. Its possible FED & Corp keep pushing markets artificially till spring-May 2017 (therefore gold kept down.. while stocks up) .. and by then could see third biggest crash.. after 2000 and 2007. And with such biggest crash.. would see gold back to new highs in the long run. Sorry for my language problems to express it.
If there’s one thing that I’m noticing more and more with the vast majority of ‘so-called’ investor/trader types is that they don’t understand the ‘psychology’ of the Market and as such, always end up getting in (or out) too late!
Steve Sjuggerud, who I follow religiously, remortgaged his house, borrowed money from the bank and started buying a shit load of stocks back in 2009 – everyone thought he was crazy, except that he wasn’t because he understands ‘Market Psychology’.
The secret to making a bucket load of money is that you need to be somewhat of a ‘Contrarian’ and your Strategy for getting in and out has to be both nimble in attitude and sound proof in execution.. if you don’t know what that means then get the f*ck out before I take all your money, haha!
Or so says the Buddha 🙂
Overkill pessimism in commodities and equities.
Hmmm, I’m in.
I remember Steve Sjuggerud saying to load up on tsxv miners 2 or 3 years ago- “the bottom is in!!!” 😉
Good stuff Gary thank you, I for one appreciate your efforts, thoughts and ideas.
Gary,
You’ve often mentioned that Crude might have put in a bottom.
Just clarify this; I assume that what you mean is that the price may not go lower, and not that it will start heading up to $50, $60 and beyond, it could take years for it to do that?
Thanks.
Let’s see how this plays out. The last time you rallied the subs it didn’t work out.
http://blog.smartmoneytrackerpremium.com/2013/04/setting-the-stage-for-the-bubble-phase.html
On the contray the last call was perfect. http://blog.smartmoneytrackerpremium.com/2015/10/chart-of-the-day-151.html
And the one before that. http://blog.smartmoneytrackerpremium.com/2015/09/more-charts.html
And the one before that. http://blog.smartmoneytrackerpremium.com/2015/09/chart-of-the-day-143.html
And before that. http://blog.smartmoneytrackerpremium.com/2015/09/chart-of-the-day-141.html
And here. http://blog.smartmoneytrackerpremium.com/2015/08/charts-of-the-day-16.html
Got this one right too. http://blog.smartmoneytrackerpremium.com/2015/08/chart-of-the-day-121.html
Another one. http://blog.smartmoneytrackerpremium.com/2015/08/charts-of-the-day-15.html
Right again. http://blog.smartmoneytrackerpremium.com/2015/08/charts-of-the-day-14.html
Couldn’t have been any closer. http://blog.smartmoneytrackerpremium.com/2015/08/charts-of-the-day-14.html
Etc. etc.
Now we are just waiting to see if I’m going to be right again about a rally in gold. I’m leaning towards this being a final bottom but at the very least it should be a respectable bear market rally.
Well Gary I stand corrected.
You have always been perfect and never missed a call.
That’s also nonsense. No one in the world is right all the time. But when someone cherry picks one time that I missed a call I think it’s only appropriate to point out all the times I got it right. But then again an honest assessment isn’t the goal of trolls now is it?
Ouch. Say Bud, do you need some Gauze?
Another telling sign is that Silver is holding up better and is nearer to its recent highs than gold. Silver looks like it could confirm a reversal before Gold.
Savage-your analysis is impressive. I feel a short squeeze is stalking the metals shorts. Warehouses are very low on physical metal. Wholesalers spin many tales of western gold melted down and sent to China as kilo bars. I expect this thing will get started slowly and the initial pullback will not be too severe. Then it’s a fast and furious rally that shocks everyone involved. I’m long AUY and PBR calls. Also would love some SAND and AG calls… Cheers!