WHAT’S HAPPENING?

First off a little history to dispel some myths. I’ve know that the head & shoulders pattern that everyone is afraid of doesn’t actually hold up to testing being little better than a coin toss. Well Jason Goephert of Sentimentrader.com actually ran the data and it’s much worse than a coin toss. The percentage of times the pattern reached it’s target was 27% for an average return of -1.2%. Not exactly a great risk/reward setup. Like most of these technical patterns that people take as gospel The H&S pattern when examined under the microscope of history rarely lives up to it’s reputation.

Now you see why I don’t put a lot of emphasis in lines on a chart. Most of the time they are just… lines on a chart!

Here is what is happening. Roughly every 20-22 weeks the market dips into a major intermediate cycle low. The cycle tends to shorten a bit in bear markets simply because humans can’t remain negative as long as we can stay positive. In either case our emotions become exhausted and need to take a break.

We are now 21 weeks into the cycle that began at the Feb. low (22 if this week ends up moving below last weeks intraweek low).
The same thing is happening in the gold market.

Just like February I expect both cycles will bottom in tandem. At that point gold should take off into the final leg up of the ongoing C-wave. The stock market is another question altogether. We are in a secular bear market after all and the stock market could bounce out of the coming cycle low and fail to make new highs before rolling over again. If that happens then yes I will call the bear market. But I’m just not prepared to call it as we move into the final ultra negative period of an intermediate cycle low.

We simply have to see what kind of bounce develops out of the coming bottom first.

96 thoughts on “WHAT’S HAPPENING?

  1. Anonymous

    Doug Kass calls the bottom on CNBC. He called the March bottom right on the money too.

    Looks like you got some pretty good company G-man.

  2. Anonymous

    gary

    dennis gartman is also with you..he is calling for selling rally…so considering his contra history he is supporting ur analysis πŸ˜‰

  3. Anonymous

    Funny how the comments just dry up when the bears start to get taken to the cleaners.

    You would think they would have learned their lesson at the Feb. bottom.

    The G-man doesn’t always time the turning points exact but he’s almost never wrong on the big picture.

    You bears better get busy scooping up gold while it’s still on sale.

  4. Anonymous

    ha ha

    if u call botton since last 15 days u gotta right on one day πŸ˜‰

    Nothing great in that..everybody (including big bears) knows markets is riped for bounce..its just a question of when

  5. Anonymous

    Gary, are you a descendent of the Vikings or the Huns? You last name sounds brutal!

  6. Gary

    Anon,
    I beg to differ. Go back and look at the posts the bears have been expecting a crash and for the H&S pattern to take the market down to 850.

    Well my grandmother was mostly American Indian but I don’t think that’s where my name came from πŸ™‚

  7. Anonymous

    G,
    Please do me a big favor and post a great big “I TOLD YOU SO” for all these dumbass bears.

    Please!!!!

  8. Gary

    Oh I think I’ll pass on that one.

    Besides I’m not completely convinced we’ve seen the bottom yet. I would have liked to see a large BoW day.

  9. DG

    If I remember correctly you had said that there was only one time an intermediate bottom came without a BonW day. Is that so? If so, then IF the bottom is in here does this mark only the second time? Especially odd given the recent large SonS day.

  10. Romeo Bravo

    For those that wonder about the Selling on Strength and Buying on Weakness. Yes, we had a big SoS day yesterday. But if, if, this rally is going to get going there will be the odd one or two days even here at the bottom where there will be some weakness. That is were I would imagine there would be BoW.

    I have learned the hard way these numbers aren’t the greatest exact timing tools we wish they were!

  11. Anonymous

    Daniel,

    $GOLD made a lower low during the current 24-hour period, so if tomorrow tops today’s high without making a lower low, today will mark a swing low.

  12. DG

    Romeo Bravo:
    I agree, but was wondering about Gary’s response to the “virtually always a BonW signal at a bottom.” I use a number of things to time my moves of which the money flow stats are merely one part. Take a look, for example, at the Ultimate Oscillator on SMH when it hits 70 or 30 for a nice safe long or short trade.

    DG

  13. Anonymous

    So quiet without the trolls. I fully expect that if and when the PMs get clobbered, they will reappear to inform the world the PMs are getting clobbered.

  14. Anonymous

    Just checking in to see how morning purchases fared. Looks good so far, even though I believe it’s quite possible we see a bit more weakness at some point the next few days. No worries.

    Boy, the shorts sure got stuffed! Where’d all the trolls go?

  15. Anonymous

    Still quite a bit of work to do before PM bulls can really start crowing (and I say this as one). Price and volume need to show accumulation (and doing so against seasonality).

    With a few exceptions (e.g., everybody’s favorite, SLW), miners lagged the broad market. No C Wave until that situation changes, imo.

    Obviously an encouraging start. Hopefully today’s highs will be topped by the end of the week.

  16. Gary

    We actually did have a huge BoW day a couple of weeks ago. But it turned the day positive so it disappeared off the data.

  17. Anonymous

    I see TK is selling more into the rally. That pretty much seals the deal for me. The bottom is in and Mr. wrong way is about to get killed again. He’s even leveraged short this time. Anyone letting this gambler “play” with their money had better get it out quick.

    Now if he would just short gold again that would be the signal to back up the truck.

  18. Gary

    Is there some kind of correlation that says silver should increase a certain amount based on how much the stock market rallies that I don’t know about?

  19. Anonymous

    Gary, since u look at money flow. Birinyi is very bullish and forecast s&p will hit 1350 this yr. What’s your take on him? Thanks!

  20. Gary

    I’ll just wait to pass judgement and see how the market does out of this intermediate cycle low. If we make new highs the bull is still intact… obviously.

    If we roll over and break below the intermediate low that we are forming now then the bear is back.

    Anything in between and it’s anyone’s guess.

  21. LowTax

    It’s interesting to watch BoW and SoS numbers at bottoms. Yesterday we had some SoS – not much but a noticeable chunk. But today, those guys got left in the dust as the market roared ahead on a 95% up day – and there was NO SoS! My guess is that someone got shafted – the market ran away from them as soon as they bailed. In that case, we can discount the SoS from yesterday. It only makes sense when there’s follow-through.

  22. Gary

    My theory on yesterdays money flow was that it just reflected the fade into the close.

    Big money was just being cautious IMO.

    Obviously today’s 95% day is the confirmation that big money decided to buy in today.

    Smart money recognises these bottoms very quickly (hey they are standing down on the floor of the NYSE) and they don’t wait around to get on board when they come as they know the biggest gains are had at the very beginning of an intermediate rally.

    Dumb money retail traders get caught unable to recognize the trend change. They then fight the trend and lose money until they are emotionally and financially exhausted then they flip right at the top and the process reverses.

  23. Anonymous

    Not much “dumb money” left out there these days, Gary. Most of the suckers have been cleaned out this decade, between two stock market crashes and the real estate collapse, which is where they ran to after 2001 because it was “safe”. πŸ™‚

  24. Gary

    There is always going to be dumb money retail traders. I don’t mean they are dumb because they are stupid but because they don’t have giant research dept. and expendable capital to buy inside information.

    Smart money is standing down on the floor of the NYSE. They see the order flow. Smart money doesn’t act on emotions.

    We’ve just seen dumb money in action. Just go back and read the posts lately. Traders were obviously emotionally attached to their positions…just like they were in Feb.

    It didn’t matter how much evidence I gave that we were due for a bounce they refused to do the safe thing and go to cash. So the end result they lost 3+% of their profits in one day and most of them will continue to be intensely emotionally attached to their positions so they will continue to fight the trend change until they are emotionally and financially exhausted.

  25. Gary

    Yes and what level was the market at at that time? …..

    Let me give you a hint 1040.

    How many days did the market spend below 1040? ….

    4

    What was the maximum closing drawdown? …..

    1.7%

    Seems like a pretty good call to me. And keep in mind I wasn’t recommending buying so one wouldn’t have even had a draw down. I was just saying one would be safer going to cash if they were short.

    If you listened to me you would have covered 40 points lower than todays price.

    Now if you want me to see into the future and pick the exact moment the trend changes I’m going to disappoint you. As far as I know no one has a working crystal ball …least of all me.

  26. Gary

    Still working it’s way into the intermediate cycle low. I think we all know we aren’t going to get the parabolic move until the fall when demand spikes so we just need to be patient for a while.

    At some point in the next week or two gold will put in the final intermediate low and start working higher into the fall.

    We have to at least put in a daily swing low before we can get a cycle bottom and we just don’t have it yet. Then we will need to put in a weekly swing low before we can say with any conviction that the intermediate cycle has bottomed.

    So just twiddle your thumbs for a while why we wait for the bottom to arrive.

  27. Anonymous

    though up by 28 points from 1040, but i m still not convinced that this is a bottom for intermediate cycle…

    i got h&S syndrome…i can see h&s in every chart..is this happens with anyone else also?

  28. Anonymous

    If you gents can’t see gold headed to 1150 first then to 1050, you need to stop trading/investing/hold till you lose all your money happens. Keep your stops in and take them. Keep loses to a MINIMUM.

  29. Gary

    Weren’t you saying the same thing in Feb? πŸ™‚

    Folks gold is just working it’s way into an intermediate cycle low and we are very late in the cycle, we could get that bottom anytime in the next week or two.

    Just hold on to your positions and the end result will be the same as those who held on through the Feb. cycle low. Namely once the cycle low is in then gold will get back to the business of making new highs and finish this huge C-wave advance.

  30. Anonymous

    I second that, and I held through the last intermediate cycle in Feb. Like Gary says you have to be willing to do what it takes to reach strong hand status. That doesn’t include losing ones position every time gold sneezes.

    Anon,
    You just keep trading and losing money I’ll just keep following Old Turkey’s advice and get rich.

  31. Anonymous

    i’m not worried in the least, G-man. You’d think the trolls would have someplace else to go, rather than badger long term holders in gold, as if they might convince others with their fearful arguments. πŸ™‚

  32. Anonymous

    From Zero Hedge

    “This is why I think the Fed and others have been fine with the recent market plunge. The only issue for them is they absolutely need gold, silver and other commodities to collapse as well. Bernanke cannot have the S&P500 at 850 and gold at 1,200 and announce QE2. Gold would surge to new highs and it would look horrible. This is why so much emphasis is being placed on getting gold and silver to retreat in a major way via propaganda pieces and also likely surreptitious selling behind the scenes. While there has been a decent pullback, it is nothing close to what they need and I am particularly impressed with how well silver is hanging in. I think this is due to a run on physical silver by investors and the dearth of government or central bank stockpiles to sell in the shadows.”

    They will do everything possible to get the PM’s lower.
    Gary, why then fight the fed in this manor and wait for the major pullback then load up the truck????
    This is what I plan to do.

    DON’T fight the FED!!!!!

  33. Anonymous

    “looking horrible” sounds like a pretty thin reason to go allegedly through all of that bother. The Fed didn’t seem to mind the optics of getting into the mortgage business to the tune of $1T.

    Zerohedge or GATA needs to posit a better reason for what they allege than an aversion to “looking horrible.”

  34. Gary

    Sheesh folks get this ridiculous manipulation crap out of your heads. Repeat after me the Fed doesn’t care one little bit about some shiny metal that has no bearing what-so-ever on money supply and has no effect on inflation pressure.

    If they really wanted to tamper with something they need to try to knock down oil. That’s what crushes economies.

    Gold is just monving into an intermediate cycle low just like it’s done for, oh I don’t know, 30 or 40 years.

  35. Anonymous

    Miners have been getting beat up big time. Gold still hovering 1200ish. Do fundamentals matter? Is there a way to track short interest in miners?

  36. Gary

    Gold bugs are the most nervous and impatient traders in the world. The miners are just reflecting the fact that gold is moving into an intermediate cycle low.

    The good thing is once that low comes miners tend to rocket higher and can make up weeks or months of decline in a matter of days.

  37. AJ

    Gary,
    I just wanted to tell you that I throughly enjoy your nightly reports.

    Simply the best newsletter I’ve ever read.

    Keep up the great work.

    AJ

  38. Anonymous

    Gary,

    I second AJ’s sentiment.

    I’m also curious to know under what circumstances, if any, you would apply partial hedges to your account (perhaps long-dated puts to quantify risk).

  39. Gary

    I never waste money on hedges. If you can’t handle a draw down then either go to physical or just adjust your position size to the point were you can handle the draw.

    Hedges are necessary for large institutions that can’t enter or exit without moving the market against themselves. But you and I don’t have that problem so we have no need to waste time and capital on expensive wasting assets.

    Let’s face it a hedge just means you now have two positions you have to manage instead of one and your broker conned you out of two commissions.

    Convincing the retail trader that he should hedge was probably one of the greatest marketing scams the industry ever came up with.

  40. LowTax

    Blogger isn’t showing my first attempt at this post so here goes again:

    Has anybody else noticed the growing divergence between HYG and JNK and the S&P? These two usually run in lock-step with the market but they bottomed back in May and are close to new highs while the S&P went on to new lows.

    Which is the dog and which is the tail? I’m betting on credit here as an indicator of direction and that the general market will follow very shortly. There’s little reason for corporate credit to be so strong if the market is so depressed. It’s more likely the market is currently under an emotional spell that Gary calls an ‘intermediate cycle.’

  41. Anonymous

    G-Mon
    Commissions are actually very small these days and should factor very little into your costs. Risk management is the key. Hedging correctly will keep you in the game much longer.

  42. Anonymous

    This is not good for longs.

    The good folks over at numismaster.com report that, starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. The report is written by David L. Ganz and is headlined “$600 Sale? Get Ready for Tax Form.” Apparently this little jewel was an add-on to the national health care legislation. But there’s a new bill being introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section… so we’ll see how that turns out. According to the author of the article Ed references, the rationale for the new regulations is that the taxocrats believe that people conducting off-book trading in precious metals are chiseling them out of $17 billion in lost revenue annually. The net result, however, will be that the government will soon know who’s got the gold. We reached out to another well-informed source who confirmed that the new regs would apply to all businesses. For example, under the new regime a plumber who does work for you in excess of the $600 threshold would be required to file a 1099 report. The implications of this move transcend just the precious metals. Rather, this is a deliberate step in the direction of implementing a VAT – once the government has everyone reporting essentially every transaction, taking the next step is a snap.

  43. Gary

    As long as one isn’t leveraged there’s no way to get taken out of the game if you are an investor.

    Again I would have to ask why would you want to buy an expensive wasting asset?

    If your position continues higher you just threw away money.

    If it goes lower you have to know when to sell your hedge or you again risk throwing away money.

    If you are good enough to know when to sell your hedge then just sell your position and buy it back when you would have sold your hedge.

    Like I said the greatest marketing scam the industry ever pulled on the average retail trader.

    But hey if you want to pretend you are a multi-billion dollar hedge fund or you just have money to burn then sure go ahead and throw money at the derivitives market.

  44. Anonymous

    And with options, it isn’t just commissions that are a concern, but the spreads are what kills you.

    A .20 spread on a $2 option is 10%. Nobody can expect to make money starting down 10-15% including commissions, right out of the gate. It’s a suckers game, as is most insurance.

  45. Anonymous

    How about that? Gold is actually positive on the week. I was hoping for some more weakness to add!

  46. Daniel

    Gary-
    I see we popped above 1203.80. Does this possibly change your Curveball theory from last nights Publication?

  47. TommyD

    Anyone,
    Have a feel for RTP and BHP? They look strong, carry a dividend and are diversified. Anyone holding them?

  48. Anonymous

    If today closed higher in gold, is that what you guys mean by a “swing low”?

  49. Anonymous

    ANON 5:47

    GLD atm options are 1-2 penny spread. Another clueless bagholder drinking the kool-aid.

  50. Anonymous

    A swing low is a daily low printed during the timing band for a cycle bottom whose highs are surpassed during subsequent trading without the low being exceeded.

    The current swing low for $GOLD is Wednesday. It’s not a guarantee that the lows will not be exceeded later, but it does define the expected risk and inform the nature of the cycle.

  51. Anonymous

    “GLD atm options are 1-2 penny spread. Another clueless bagholder drinking the kool-aid.”- anon

    Check again, wise-ass. Maybe if you’re a broke fool (no wonder if you’re trading options) trading the ones that expire next week, but every other expiry out there sees wider and wider spreads, not to mention that todays’s “at the money” are tomorrow’s out, or in the money, and you have the same problem again on the exit.

    And don’t forget that when you close the trade, you’ll have to eat that spread again. LOL!!! Keep “hedging” yourself right out of a profit. What makes you think you could trade an option profitably, when you can’t even time the underlying correctly, and that doesn’t even have time decay working against it? πŸ™‚

  52. Anonymous

    The option pro must not have a very large account, if he can hedge his entire exposure in a contract that only trades several hundred/day.

    Careful who you listen to! πŸ™‚

  53. Anonymous

    True. If he’s so sure he won’t lose the spread because his options will be again be at the money when he closes, then why buy insurance to begin with?

  54. Anonymous

    Anon 10:32

    I have noticed that you really do seem to know it all. You criticize everyone here that does the opposite of you. I am also sure you are the only one that makes money. You are so funny its stupid. Please stay long and strong and you will be wrong. You will disappear just like the others have over the years. HAHAHAHAHA.

  55. Gary

    Daniel,
    I don’t know. That’s why all I did was remove the small leverage and didn’t touch the rest of my positions.

    If we get a weekly swing next week then maybe this is all there is going to be on the other hand 7 days seems a bit short for an intermediate level correction.

    Anon,
    The only people that can ever “disappear” are perma bears as a bull market will bankrupt a perma-bear.

    Anyone who just holds an unleveraged portfolio will eventually make a ton of money. Let’s face it the market in the long term always goes up. And a secular bull market always follows a secular bear. A 20 year old could buy at the exact top in 07 and as long as he just held on he will end up rich by the time he retires.

  56. Anonymous

    Hey troll babies where are ya? How come you all of a sudden disappeared?

    Let me guess you got caught at the bottom again just like you did in Feb.

    Anyone want to bet they will be back to do it all over again at the next correction? I seriously doubt they learned their lesson even though this is the second time they got schooled LMAO!

  57. Anonymous

    Aren’t you glad you didn’t buy those puts on GLD? You’d be down 40-50% already. Some way to show your gratitude!

  58. Gary

    There are right and wrong ways to use options. Deep in the money with a delta of 80 or higher can be substituted for actual shares.

    This strategy is also great as arisk control device if price moves against you. You will gain extrinsic value as your intrinsic value declines. So you would end up losing less than if you owned actual shares. It only works for deep in the money options though.

    Anything else is pretty much just gambling.

  59. TommyD

    I took 13% profit in HMY which freed up some moneys to start 1/4 positions in RTP and BHP. They got gold along with other PMs and even diamonds as well as sporting a 2-3% yield divvy.

    Everyone have a happy and safe weekend.

    Tom

  60. pimaCanyon

    since we’re talking hedges here, how about this: How about covered calls?

    You own some GLD. Why not sell OTM calls at a strike price higher than you expect GLD to go before expiration. This is actually more of an income generating strategy than a hedge, but if GLD goes down, your short calls will also go down, so you will lose money on GLD but make a little money on your short calls, so your net loss will be less. If GLD goes up, your gain will be less, but only if the options go into the money prior to expiration. If they expire worthless, you pocket the premium you sold the options for.

    The only downside I can see is if the blowoff top occurs prior to expiration of the options. Then you lose out on profit you would have made had you not sold the options. The way to avoid this is to wait until a week or two prior to OPEX to short the calls and then go far enough out of the money to reduce the risk that that might happen.

  61. Romeo Bravo

    Pima, you can also “roll” your option out if it getting close to being in the money. That is, select a further out month and a higher strike price.

    It does take some figuring and practice, but it can give you some protection and income.

  62. Gary

    If you believe in the bull then a better option than having your shares called away from you in a powerful rally would be to sell out of the money puts at what you believe to be intermediate bottoms. If the put goes into the money and the shares get “put” to you so what you would be buying down here anyway and presumably the bull will correct the timing error soon.

  63. Jesse

    Gary,

    As long as one is very bullish I also like to sell deep in the money leap puts. For example, if I am comfortable having GDX put to me at a cost to me of $50/sh or less then selling the Jan 12 60’s or even 75’s if I am super bullish has 2 advantages. One, the potential gain can be bigger if the market really rallies strongly and second going way out in time brings in more time value and long term capital gains tax rate. In the past few weeks I have been selling a few of both of these strikes as we form the current intermediate bottom. Now if you keep moving that bottom out into the future I might have to sell some more. πŸ™‚

  64. Anonymous

    Hey DG where have you been buddy? Must be busy watching his equity shorts evaporate. Still hasn’t learned his lesson shorting gold either.

    Repeat after me. Never short a bull market, never short a bull market…

    LOL!

  65. Anonymous

    I’ve got to say this is just down right fun busting on the trolls.

    You would have thought they had learned their lesson in Feb. But no they made the same mistake again.

    I just know they are going to do it a third time. I can can hardly wait. LMAO

  66. Gary

    Nothing much changed this week. About the oly thing the COT’s are good for are spotting D-wave bottoms and that’s a long way off yet.

  67. Anonymous

    Gary,

    What do you make of the weak performance by the miners? Do you think the miner investors are smarter than the futures/physical players and this will lead the price of gold down? Do you think maybe it was fund redemptions (e.g., Paulson)? Any thoughts are appreciate because, man, they’re acting weak especially yesterday when they gapped up and then many of them closed down even though gold was up about 1%. Thank!

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