The stock market is really nothing more than a gauge of human emotions. And just like bodies in motion, human emotions also follow the laws of action and reaction.

In simple terms the bigger the bull the bigger the bear and vise versa.

We’ve had a ring side seat to this as we are witnessing one of the most aggressive bull markets in history unfold after the second worst bear market ever.

Lately we are seeing this play out on a smaller scale in the intermediate swings. After the powerful initial thrust out of the `09 bottom and the final spurt into the second leg top we witnessed a rapid correction of 9%. During that correction sentiment again quickly reached excessively bearish levels. The general consensus was a second deflationary spiral was upon us.

It was of course just a brief profit taking event like I said it would be. But that’s beside the point. More importantly the severe bearish sentiment generated a powerful runaway move out of the February bottom.

That extreme move in turn swung sentiment to levels of optimism in line with what we saw at the `07 top.

Now the law of action and reaction has again taken the market to the opposite extreme. Those extreme bullish sentiment levels generated during the runaway move have now produced one hell of a hang-over complete with a mini-crash.

So here we are again. Human emotions have now run to bearish extremes similar to, and in some cases even worse than what we saw at the `09 bottom.

If this is only a correction in an ongoing cyclical bull market then we have now built a massive negative sentiment base from which to launch the next explosive move higher in the ongoing war of action and reaction.

51 thoughts on “ACTION & REACTION

  1. Anonymous

    No matter which way you cut it, I am getting that 1930 feel. Money can be made, but I like cash right now. I really don’t like what is going on. I ain’t no hero, those of you that win this battle my hat off to you! Something is setting up!

  2. Brian

    “If this is only a correction in an ongoing cyclical bull market then we have now built a massive negative sentiment base from which to launch the next explosive move higher in the ongoing war of action and reaction.”

    Am I reading EW Int’l, or was this intended to be a non-call?

  3. Richard

    It seems like every market commentator on the Internet has been predicting a decent bounce any day now. It can’t happen until large buyers are willing to come in, and who knows at what level that will be?

  4. Gary

    I don’t follow EW. I really have no idea whether the bull is expiring or not. If we drop below 1044 the odds go up tremendously that the bear trend has resumed.

  5. Anonymous

    although we broke through the 1041 level on futures, the dollar failed to make a new high for this cycle. Any thoughts?

  6. Anonymous

    Futures have hit 1038 on my platform already, that was about an hour back. Now back to 1047… if only for a while.

  7. Anonymous

    Futures have hit 1038 on my platform already, that was about an hour back. Now back to 1047… if only for a while.

  8. Anonymous

    The BEAR is back…1041 in the futures…its OFFICIAL…I’m calling it…hahahaha

  9. Mark


    More likely is the following: Obama made a deal with the banksters to goose the stock market. In return he would give them all the money they wanted. A bull market in exchange for a mega bonus… what bankster is gonna pass on that.

    The play was to sucker the sucker back into the market, sell out to him at the top, and make another fortune on the way down.

    But, the sucker never showed up. Events have overtaken the banksters and they’re gettin’ out no matter the price. Do you doubt the banksters goosed the market on Friday to settle those puts out of the money?

    It’s all a game, a very rigged game. Not saying you can’t make money, just that to do so you’ll do better if you’re on the inside. Us outsiders got damn little chance.

  10. Gary

    Our defense is to not play the game. Just get on board a secular bull and ignore the shenanigans. In the end you will come away with a pile of cash no matter what hapens in the short term.

  11. Anonymous

    So what to do next S&P will breach the Feb low on open thats for sure, everybody says it 2008 all over again, wait for the double dip is better than just the dib, spain broke Italy althou, € is toast at least gold and silver keeping up but with this down gravity of the market miners will still suffer heavy losses today. All in all time to be sideline.

  12. Anonymous


    We are very close in putting a major bottom i.e. a seasonal cycle low NOW

    Buy BUy BUY…


  13. Gary

    An intraday move still changes the pattern to lower lows but it would be a 2b reversal.

    All in all I would still have to think the bear has returned.

  14. Bear

    Gary, so u changed your mind that the bear has returned on the stock market? I guess it is the shortest bull ever.

  15. Gary

    I never made up my mind. I said if we broke 1044 the odds would go up darmitically that the bear has returned. That has now happened so I would say the odds are now in favor of the secular bear trend is back in force.

    It’s meaningless to me though has I have no desire to fight with a bear market and the Fed’s printing press as long as the secular gold bull is intact.

    It is and that is where the really big gains are going to be had. I can’t see much point in taking huge risk for little gain shorting the stock market when the easy money is just sitting in the corner waiting to be picked up for those that can ride the bull.

    Time for me to climb some rocks 🙂

  16. Bear

    Gary, I understand that the bull is in gold market. But it seems like the miners are being dragged down by the stock market while gold price remain stable or raising. Either the gold price is rightly justified or miners are discounting gold price weakness in the near future.

  17. Anonymous

    Was that you dawler boy going long TBT? I like that play here, I’m grabbing a couple puts on TLT to work that angle.

  18. Marc

    When the PMs rise, the miners get a windfall. Everything else stays the same for them only their margins improve. A drop in oil prices also helps the miners as energy is a big cost for them. The big picture shows gold especially holding onto it’s highs while the market tanks.

    Bottom line, anyone mining gold will see a much greater return.

  19. pimaCanyon

    Feb low now busted, so I’m guessing that you’re now favoring a continued decline from here. Maybe we get a rally to back kiss the broken TL, and then serious tankage.

    On the other hand, we already did the TL back test, but didn’t get all the way back. That was the mid-May high. Looking more and more like it’s down we go. The “contrarians” who buy this market expecting new highs might as well be buying lottery tickets, the odds are not in their favor.

  20. pimaCanyon

    Gary, are you a rock climber? Do you also do mixed climbs in alpine terrain?

    I’m an avid hiker/backpacker/scrambler with just a little climbing under my belt. Hauling all that climbing gear was always a little daunting, especially when there were so many ridges to wander and non-technical peaks to climb. Most of my outings have been in WA, with some in AZ, CO, and UT.

    Stay safe out there. And have fun!

  21. Anonymous

    Anon 9:06

    Shure was partner…gotta luv this mawrkut…abuve 97…btw gittin shart dawlers two…cuvered all shart equities around 1040-45…what a ride…giddy-up…i will sell bounces…we still go much lower in stox…stihl shart ole yeller…

    Dawler Guy out…

  22. Anonymous

    theare (i mean dear) dawler gouy

    pout youer treades in real time… after the fact its meaningless

    gout ite 😉

  23. Anonymous

    I am perty shure most all mi trades r perty neer as reel time as they all can bee…jest go bak and check…

    Dawler Guy out…

  24. Anonymous

    I was 100% short the market including gold in dec 2007, I was fully long in march 2009 and sold out in nov2009 where I’ve been long dollars and short eur since. I’m also hung like a horse and my names DICK! Hey dawler red neck guy, how about you post your losers real time or is your real name Lloyd??

  25. Anonymous

    I was 100% short the market including gold in dec 2007, I was fully long in march 2009 and sold out in nov2009 where I’ve been long dollars and short eur since. I’m also hung like a horse and my names DICK! Hey dawler red neck guy, how about you post your losers real time or is your real name Lloyd??

  26. TommyD

    Anonymous with the dollar mispronunciation, speak English; stop the baby talk. Cease and desist as you are really sickening to listen to. And, I question your strategy and purpose here.

  27. Anonymous

    Kind of a newbe here. What are some indicators to follow sentiment? How do we know when bearish sentiment is at extreme levels? Follow news? Thanks, like the blog!

  28. Anonymous

    Listen up losers…
    I have been short gold since 1175 and not covered…I am all out of pasifyers…wtf do you people want…you losers need to make the decision to buy or sell on your own…there is no crystal ball fellers…Ya’ll need to get a life!!!

    Dawler Guy out…

  29. Anonymous

    Sucker’s rally! I would take the chance to unload at this point. Gold is a big ?….may soar or it may tank.

  30. TommyD

    Denis Gartman, Great seeing you again, posting anonymously. Yes, I took your advice and just sold my gold and silver for 57k loss. I am following you now man… Where to?

  31. Anonymous

    Tommy D, now that your cashed up you need give me 5000 grand a year subscription so I can show you how to lose more money. The rest should be donated to the Jeb Bush for president 2012 campaign.

  32. Anonymous

    Dawler Guy,

    No need to get your hide all chapped… some of us appreciate your calls. Ignore those ol’ prospectors at the bar and have another drink…

  33. Gary

    Hi Gary.

    You do seem to offer contradictory opinions sometimes.

    Just a week or so ago (and again in comments today) you were saying if we took out the Feb lows (which we did today intraday)then the bear was back.

    Yet a month ago you were quoting your ‘cycles’ and insisting that all cyclical bulls have 3 legs, and we’d only had two, and we were headed to 1320 on SPY.

    Hmmm I say!!

    You write some great stuff, and thanks for that, but you really can’t use the phases of the moon (or whatever it is you use) to call tops, or bottoms.

    One has to be more nimble than that I think.

    Anyway, we shall see, but for now I am claiming rightness versus your wrongness on this market.

  34. Anonymous

    Denis Gartman is sheer waste of USD400 per month… if you follow his calls you are guranteed to get 90% loosers…this sucker is an excellent example of ppl who have very good contacts with media and who capitalize on that publicity to hook ppls with USD400 to spend…and i feel pity for bloomberg & cnbc to see him quoted daily and that too for the things which don’t add any value as such…is there anyway to inform media that quoting this guy daily doesn’t add any value ….

  35. Gary

    we did get three legs up in this bull so no I did not miss that one.

    I’ve been saying for a couple of weeks now that if the Feb. lows were broken then the bear is probably back and we’ve likely seen all this bull has got to give.

    I’ve never had any positions in the stock market for months and months now only miners because gold is the only asset that is still in a secular bull market.

    So any one who has followed my investments has done just fine.

    BTW coming on after the fact and telling us you called a top isn’t really credible and I really doubt if anyone buys it 🙂

    How about you call the bottom ahead of time. Now that would be a nice trick.

  36. Anonymous


    You said

    ” I’ve been saying for a couple of weeks now that if the Feb. lows were broken then the bear is probably back and we’ve likely seen all this bull has got to give.”

    The Dollar did not break to a new high yesterday. The May 19th High. If the Dollar start to go lower, wouldn’t this then be a left translated cycle and add fuel to the stock markets?

  37. Gary


    So we did see 3 legs up? But if we didn’t see new lows…what, we’d see a 4th?

    That is hedging ones bets isn’t it.

    Check back through your posts, and the comments, and you may recall I offered you a bet on the top being in back in April.

    At least TK puts his hands up when he’s wrong!

    Unless you suffer from selective memory that is?

  38. Gary

    Gary, please find noted below my comment and your response from March 28th. I can’t find the one where I offered you a bet, it may have been in February. Let’s see how quickly this thing crashes shall we? And all prices are deflating (except gold i’m pleased to see). Come on, admit you got one wrong, just once!!

    Gary said…
    I am not Gary the blogger, but another Gary from the UK.

    Whilst I think this article is full of common sense stuff, I personally think the bubble is here already, and it’s the stock market.

    As Gary correctly points out, consumers/households are deleveraging at a rate of knots. People have realised that they can’t live beyond their means, and are trimming their budgets accordingly. It is VERY significant that debt is reducing. it reverses the effects of years of fractional banking, and we are seeing in money supply figures that despite the Feds printing, the money in the system is falling (not rising).

    So, whether you call this deflationary or not, when the US consumer spends less, and earns less (because of high unemployment) then US companies will also earn less. That is not rocket science.

    The stock market is pricing in a recovery/growth, but in reality it is simply not happening.

    Stocks continue to go up because of the Fed’s liquidity (banks have to put it somewhere).

    Eventually though, reality will pop this bubble as with any other, and that time is getting very close.

    So, buy the dips at your peril, because when reality sinks in, there will not be a painful slow correction, we will see a swift crash-type coreection.

    Best wishes.

    March 28, 2010 2:18 PM

    Gary said…
    I know the bears would love to see another crash but those are very rare and very far between. It will more likely be a long grind down similar to the 2000-2002 bear and the Fed will fight it all the way with the printing press.

    That kind of bear chews up bulls and bears alike.

    Best to make as much as we can on the long side while this cyclical bull remains intact because it’s going to be very very hard to make money during the next bear leg down.

    March 28, 2010 2:23 PM

  39. Gary

    If the dollar starts heading down it would probably support the markets but that doesn’t neccessarily mean the market would rally to new highs, but it certainly could.

    Hey Ben aborted a left translated 4 year cycle he could certainly cancel a broken yearly cycle if he turns up the printing press again.

    Certainly we could see new highs again even though the Feb. yearly cycle lows have been broken. Like I just said Ben aborted a left translated 4 year cycle he could easily “fix” a broken market if he cranks out several trillion dollars.

    None of us can see the future. Not you, not me, not anyone.

    The break below the yearly cycle low is just the first shot across the bow that the cyclical bull is in trouble but it certainly doesn’t guarantee that one can now short the market with impunity.

    As a matter of fact I warned all subs last night that they would have to be nuts to short the stock market. Let’s face it you are going to be fighting the Fed’s printing press, Wall Street, Washington and one of the trickest bears in history.

    Who in their right mind wants to fight those kind of odds? Not me, especially when there is easy money laying in the corner just waiting to be picked up.

    The secular gold bull is still going strong. All one has to do is get on board and just hold on. By the end of the bull one will have gotten rich without all the headaches of trying to outsmart a bear market.

  40. Gary

    PS … I just made £180k in 3 weeks as the markets fell 15% in 3 weeks (plus we had 990 point drop in 1 hour as a prelude), now that’s hardly slow!

    And a follow up to the Fed printing to fight it..will the US citizens allow them to do it again after the mid-terms? The social mood is changing, it’s going to be the 30s all over again, deflation.

  41. Gary

    I do still think this will be a long slow grind. A meager 13% decline over 4 weeks does not a crash make. A crash is what happened in Sept and Oct. of 08.

    So I’ll take your bet. I don’t think the bottom is just going to fall out of the market and we go into freefall back to the March 09 lows.

  42. Anonymous

    Gary from the UK. Why not use the handle ‘GaryUK’ to avoid confusion?

    “I told ya so”….blah, blah, blah.

  43. Gary

    I can guarantee that when things start to get bad American citizens are going to beg for the printing presses to be turned on.

    And if you think they won’t be turned on prior to mid-term elections I have some ocean front property I’d like to sell you here in Las Vegas 🙂

    If you are trading a million and a half euro account and you caught the exact top of the market then yes you made 180K.

    But if you aren’t then you are leveraging up to make that kind of money. The problem of course with leverage is that when the trade goes against you you risk your entire account.

    So just for arguments sake let’s say you are leveraged 5:1 and the market has now bottomed. That 180k is going to evaporate in the blink of an eye and if you don’t recognize the bottom quickly enough and exit you run the risk of destroying your account.

    It sounds like you are set on your view that we are going down hard. If that certainty causes you to hold on to your position and the market has bottomed you are now on the verge of ruining your portfolio.

    I hope you aren’t trading with leverage so you can survive just fine if the market doesn’t do what you expect.

  44. Anonymous

    Has gold bottomed? The miners have had a sharp reversal. Missed the opportunity to add on Friday.

  45. Gary

    Gary-UK again.

    Yeah, I use leverage, but I use stop-losses too, so my account won’t blow up. And options too, when the VIX was down in the teens, very profitable they were.

    And now 90% cash, my only long position is Gold.Zero equity trades right now.

    Just wating for the bounce to 200day SMA or thereabouts, then I’ll load up again.

    I’m no mug trader, not perfect either, but this next leg down will be the most violent in the entire bear market, at least that’s what my research tells me.

    And I’ll be looking to profit from it. Complacency is what I want to see from bulls. Which includes the belief tat Bernanke will come to the rescue again….well, they didn’t save it in 2008/09, and they won’t save it this time either.

    We have nearly reached the point where extra added debt/printed money is self-defeating. That’s why I am long gold. But I still see deflation for at least 6 months.

  46. Anonymous

    We all will wake up one morning and see a 1-3 thousand point down day…soon…
    Gary uk…I’m with you…DEFLATION

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