During the recent correction miners underwent a significant change of character.

I’ve mentioned many times in the past that the selling pressure at intermediate cycle lows tends to pull everything down with it. That always includes the miners. Mining stocks are notoriously volatile and gold bugs are probably the single most nervous group of investors on the planet. So it’s not unusually to see the HUI drop 20-25% during an intermediate level correction in the stock market.
You can see that during the first two intermediate degree corrections we’ve had since this bull market started, miners followed that pattern to a T as panicky gold bugs fled the sector in droves.

During this latest intermediate term correction something changed though. During the first stage of the correction the mining sector could have cared less what was happening in the stock market.

During the first two weeks of the correction while the market was in crash mode miners actually rallied over 14%. Miners, like gold had completely decoupled from the stock market. It wasn’t until gold put in it’s smaller daily cycle correction that the miners pulled back at all and even then it was only a mild 16% pullback.

Pretty impressive action considering the stock market was still experiencing severe selling pressure at the time.

It’s apparent that miners have now moved into strong hands. Hands that aren’t going to sell at every little wiggle in the market. Hands that are going to scoop up the shares that flighty retail investors are foolish enough to let go of.

55 thoughts on “CHANGE OF CHARACTER

  1. Anonymous

    Fear trade is off for now…Money will not flow into miners but into other assets that got sold off hard. (Oil, steel, ags, etc)

    Miners will now drop.

  2. Gary

    Miners are still massively undervalued compared to the price of gold.

    Value investors are going to continue to scoop up mining stock just like they’ve been doing since November of 09.

    It’s still a secular bull market and it’s still the only one left.

    Bet against that at your peril.

  3. Gary

    Technically yes, although I would like to see the market close above 1105.

    Even if it doesn’t we have now broken the pattern of lower lows and lower highs.

    I think the odds are very high the bottom is in. Now the question is going to be whether the market can make new highs or will this just be a bear market rally before heading back down.

    By the number of emails I’ve received over the last two weeks assuring me the market was going to crash it’s apparent the retail traders are now very heavily positioned in the wrong direction. When they finally figure it out and cover it could start another momentum move like we saw in March and April.

    Sentiment did reach trully historic levels of pessimism. That kind of extreme emotion almost always morphs into bullish optimism equally as extreme.

    My guess is that we will see new highs especially since most of the market did not confirm the break of the yearly cycle lows by the S&P and Dow. Both were dragged down by the energy sector because of what is happening in the gulf.

  4. Anonymous

    Are you looking for a short gold daily cycle to bottom soon and finally complete the C-wave move with one longer parabolic daily cycle lasting the normal 25-30 days?

  5. Gary

    No I think it’s more likely that gold will eventually move down into an intermediate low and then we will see the final phase of this C-wave as the next intermediate cycle tops in the fall.

    Of course there is the possibility that the drop we saw a few weeks ago along with the stock market moving into it’s intermedite cycle low constitutes the intermediate decline for gold.

    If that turns out to be the case then we are already in the initial stages of an intermediate degree advance.

    Gold does look like it’s trying to form a triangle continuation pattern.

  6. Anonymous

    Gary, you’ve gotta admit we will soon be entering the usual ‘weak season’ for the PMs so don’t be expecting too much. As a side thought what are your opinions on BP? Looks like Obama’s looks like Obamas going to pump them for the next stimulus package. I wonder if any of your readers live near any of the effected areas? Are the effects really noticeable or is the media playing it up?guruboy

  7. Gary

    Apparently you are new to the game. Go back and see what happens when a C-wave tops then come back and tell me gold and silver move slowly.

    We are already in the slow season and gold has made a new all time high. So it’s already doing things it’s never done before.

    My guess is we see a mild intermediate decline sometime in the next month or so then a huge ramp into the fall to top off this massive C-wave.

  8. pimaCanyon


    You wrote “By the number of emails I’ve received over the last two weeks assuring me the market was going to crash it’s apparent the retail traders are now very heavily positioned in the wrong direction. “

    By this I am guessing that you are taking those emails to be an accurate representation of what retail traders are thinking. My guess is that most retail traders do not do enough research to even find your blog, much less take the time to email you. I’d guess 90 percent of retail crowd does very little research, including reading internet blogs. So my thinking is that emails to you are not indicative one way or the other of how the retail traders are thinking.

  9. Gary

    Of course I’m just basing this on the percentage of “crash” emails I actually get, but the ROBO ratio is the highest its been since the March 09 bottom. That is a pure retail trader sentiment index. And that index is saying the dumb money is now almost all in on the crash scenario.

    Like you say these traders do very little research other than looking at lines and imaginary patterns on charts so I don’t like their chances of being right here.

  10. thedocument

    The nature of the gold bull changed with the 2008 liquidation event, which I believe marked the transition from Phase I to Phase II of the commodity bull. That said, I don’t think the A-B-C-D wave analysis will work as it did in the first phase.

    In this phase, I expect stronger trending moves, meaning gold is likely to see a series mini parabolas, followed by pull-backs or basing/consolidation like we saw this year.

  11. Gary

    I’m going to go out on a limb and say we are seeing a large consolidation before the second leg up in a large T-1 pattern with a target of around $1500, which will be followed by a D-wave decline that will test the 1200 level.

  12. Anonymous

    I’ve been looking at the same charts you have Gary. My only qualm is that the HUI may not have put in its low yet. In 2009 it dipped around June 22, popped up, then dipped sharply again. This time in 2010 the HUI has dipped and popped up but… hmm. Could it have one last sharp dip? Same kind of 2nd dip happened in late January 2010 too.

  13. Gary

    Sure it could have one more dip. I’m not going to worry about it though as it’s still a bull market and like I always say the bull will correct any timing mistake.

  14. Anonymous

    Just checking in for a moment. Boy, this is the supposed pullback in gold?

    It’s beautiful really, this relative strength. If you’re not already in, I’d recommend buying even the smallest dips in this mighty bull. Gold should have pulled back more than just 2% by now, but just can’t keep a good bull down!

    Good luck, and I’ll continue to check in periodically.

  15. Anonymous

    I have to say I was skeptical but the HUI is showing no signs of wanting to move back below the 50 DMA.

    You may be right about never seeing sub 450 again.

  16. Anonymous

    Before this all over you traders are going to be kicking yourself in the ass wishing you had listened to the G-man.

    Old Turkey baby. That’s all you need to know 🙂

  17. Gary

    The only thing that has any significance on the money flow data is the SPYDER’s. Professionals measure themselves against the S&P.

    We now have a follow through day. Smart money recognises the trend change and are positioning long today.

    Dumb money retail traders will continue to fight the trend until they’ve lost too much money to hold on any longer.

  18. Anonymous

    IVV really is the same as SPY, and I don’t see why block trades in the Qs or IWM is any less significant than SPY.

    That said, I’m not disagreeing with you Gary. The bullish action speaks for itself. Just noting interesting data.

  19. Anonymous


    I take you studies go beyond this gold bull, and this is just where you are planting yourself for now, until this bull fades and we get another.

    Any idea what the next bull might be? Alternative energy perhaps..Something that is practical and clean. Until then, despite the belief that gold needs to stop around a 1:1 ratio with the Dow, I don’t see how any other bull market can exist. This due to the fact that central banks will attempt to artificially create value by simply printing money. This of course devalues currency, and is bullish for gold and metals. However, I don’t see the gold bull stopping until an alternative energy is developed that is clean and cost effective. Gold is not related to energy, but is related to how the government handles the reality of a staled economy…ie keep printing to brag about nominal GDP growth while real growth is negative or close to zero. Energy seems to be our main bottleneck as a world economy, and the major cost in the importing US directly and indirectly. Even if China and Asia were to take over as the dominant culture in the world, they will too quickly be stalled by energy crisis issues, and would only stall the inevitability need to deal with an alternative form of energy.

    Any thoughts? 🙂

  20. Gary

    If you go back and study the historical data you will see that nothing other than the SPYDER”s really has any predictive value. And even those have tended to be a bit early lately.

    Actually we have to solve the energy problem before the next great secular bull can begin. I tend to think it will come out of the biotech industry myself.

  21. Anonymous

    anon 11:16

    I sold my long $ position awhile back…yeller is hurting a little…my avg has risen quite a bit over the last several weeks…todays action looks good for bulls but give a few more days…short stox still but have taken some off on the way up the last few days…
    all I can say is there is some very weird things going on across the board…

    DG out…

  22. Anonymous

    Can’t blame Dawler boy from getting all cranky. Can’t be easy getting stuffed day after day, especially since he prides himself on short term trades forcing him to work very hard at losing that money.

    Anyway, I’m just checking in at end of day, but would add I’m pleasantly surprised again. 🙂

  23. Anonymous

    DG, nothing weird it’s completly normal, your just WRONG! Face it, after 30 years of trading you can still be wrong. The problem you have is ‘the forest for the trees’ think about it and let me know if you understand.

  24. Anonymous

    “my avg (on yeller) has risen quite a bit over the last several weeks.”

    LOL! You better do something about that, considering you’re a shorter term trader, have more size on than when you started, and expect it to continue a few more days. You might want to cover before you blow out to the welfare line, DG. Just some friendly advice, no harm intended.

  25. Anonymous

    Dawler Guy’s broker must love all the commissions he generates, and anon@1:34 is correct. Having the most size at your weakest point is no way to trade, IMO.

  26. Anonymous

    Seems as small to jump in DG’s face on an up day for gold and SPX as it was for him to crow about his plays when gold was down and the dollar was up.

  27. Anonymous

    Calling out DG has nothing to do with one “up day in gold” for most people here, as they are long term holders, and many are up quite nicely over the last several months.

    Guys like DG that make day to day calls can be held accountable for those, as reflected in their P+L.

  28. Anonymous

    Regarding Dawler Guy…

    I’m one of the Anons who appreciate Dawler Guy’s postings here. I think he’s honest. If yeller is moving against him, he says so. Seems to me, those who jump on DG have an unhealthy relationship with the market. They look to it for validation, rather than simply making money. If they were truly long-term winners, they’d be serene and respectful… just like Gary is.

  29. REHAB Moron

    Look I am a moron. I already know! For those that say, hey Rehab, you are a freaking idiot…I will fully agree.

    The problem is this. Trading does’t make money over the long run. Metals is a bull until jerks like me sell otherwise.

    Signed the Moron

  30. Anonymous

    Looks like wrong way TK is about to get run over by the bull again for the umpteenth time.

    Talk about not being able to learn ones lesson. LOL

    Anyone wanna bet he shorts this market all the way up? Anyone?

  31. Anonymous

    DG’s strategy is a loser, even if some like his posts. Simple, he has the most size on in his worst trade, proven by the fact he has “averaged up” quite a bit (sold more short) in a losing trade. Recipe for disaster, especially since gold is the last and strongest bull market.

    No apparent edge, and definitely poor risk control results in one of the 90%+ traders that lose money…guaranteed.

  32. Anonymous

    ANON 4:00

    You obviously are missing the big picture here…you just keep concentrating on my short gold position…it is only a part of my portfolio…you need to pay attention to what has been going on for the last 6 months…just go back and read the posts w/o blinders on…
    There is no need to pile on when someone loses money in ONE position…I would be very careful with your most unstable ego here…
    I hope everyone makes money except for those bastard @ GS…
    You should worry about your gains instead of my gold loss for now…
    There is still a very large double top in gold still working…patience here…

    DG out…

  33. Gary

    Just to throw my two cents in 🙂

    There is a massive bull market working that dwarfs any momentary double top.

  34. Anonymous

    Anybody else notice that all the Miramars, Dollar boys, GG’s and assorted Guru traders all seem to eventually fade away never to be seen again while all us “Old Turkey” types just keep making money 🙂

  35. Anonymous

    I like yeller and do believe it will go higher…much higher…i am short yeller against other commods and markets…I would never be straight short yeller…
    I just do not think the time is right to go all in long gold right here…

    DG out…

  36. Alex

    Hy Garry,
    just wanted to report as we discussed way back when Gold gets in the news than its time to sell, that i sighted the first billboard ad for a company buying and selling gold in my city (frankfurt,germany). And on TV there is a spot getting aired more often with a guy saying i will buy your gold…
    If the Masses start to jump in now it seems a bit early in my opinion.
    But still non of my friends are talking about it :=)

  37. Gary

    So far here in the US it’s about 95% ads wanting to buy your gold. That’s smart money trying to separate the ignorant public from their gold for pennies on the dollar.

    Once I see all the ads wanting to sell me gold then we’ll know we are heading into the final stages.

  38. Anonymous

    Gold is doing EXACTLY what it needs to do in order to keep the bull going. Even those that KNOW gold will go higher in the next decade are out of gold, because 90% of people or higher are active traders. Gold goes up enough to warrent some attention, but quickly consolidates for an extended period of time to throw off the traders, then surges, and then throws off traders again. Gold at $5000 is almost a given. Gold at $10,000 is the real problem. That is do you sell at 5k or 10k? Just need time and it will hit.

    Why would anybody want to sell or go short is beyond me? LOL

  39. Anonymous

    You will know gold is in its terminal stage when it doubles in the space of a few months.

    This is the classic parabolic top a la the Nasdaq in 2000.

    In other words, if gold goes to $2400 by year-end 2010, sell and never look back. (I don’t think this is going to happen, it’s just an example)

    My guess is that gold goes to $2500 over the next 18-24 months, then doubles again to $5000 in the next four months after that. But these are just guesses. Gold may slowly grind its way to $4000, then quickly double to $8000. The numbers don’t matter: it’s the pattern that you have to watch for.

    However, if you are in PM stocks, you will see them falling even as gold is rising, because they will be anticipating the final top. This will be another sign that the bull is ending. Rocketing gold & falling miners = the end.

    Toward the end, pigs will fly: the stocks of the stupidest, flimsiest exploration companies will soar. But these will also be the first to blow up and crash at the very end: they are the canaries in the coal mine. Watch for them.

    None of this has happened yet.

  40. Gary

    Actually during the last gold bubble in the early 80’s it was the exact opposite. Miners topped almost 6 months after gold.

    At true bubble tops the dynamics are different than normal C-wave tops. During the 1st and second phase of the bull smart money will start to take profits as a C-wave matures. They understand the law of regression to the mean. This often leads the miners to top slighty before gold.

    However at a bubble top it is manic public buying driving the rally. The public never sees the top and they just keep buying even after the end is clear to smart money.

    I expect we will have a bit of a buffer to exit our mining positions even after gold has clearly topped.

  41. Gary

    The gold:XAU ratio took a historic beating during the crash. It has been gradually trying to work it’s way back to more normal valuations ever since. But it’s not an overnight process.

    Eventually miners will completely recover as the bull progresses.

  42. Anonymous

    “I expect we will have a bit of a buffer to exit our mining positions even after gold has clearly topped.”

    Typically the markets are anticipatory — they forecast recessions, etc. For the market to lag what’s happening in the real world would be pretty unusual.

    I’m not saying it’s not going to happen this time, but I wouldn’t bet the ranch on it. We are a long way from that moment, so it’s not a pressing issue, but the only way you can truly lose money in a bull market (other than trading) is to overstay your welcome.

  43. Anonymous

    Not a lot of comment regarding the today’s price action for GDX vis-a-vis both SPX and GLD. Would have thought folks would be making a bigger deal of it.

    The line chart of daily closes for GDX also appeared to clear a notable horizontal today.

  44. LowTax

    Anon at 5:18, I think most of us are longer term traders; we tend to ignore the daily squigles. I’ll start paying more attention when GDX breezes by 55.

  45. Anonymous

    Flash TK is again shorting gold. This is the same guy that just got runover trying to short GDX.

    This guy just is unable to learn from his mistakes.

    On the other hand when he finally loses enough money and decides to go long it will be our que to take profits.

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