I figured out early in my career that arguing with the market more often than not ends up costing one money. If you are one of those people who are unable to change your mind, this business will almost certainly chew you up and spit you out. Never has that been more true than today.

Folks, we are in the middle of an ongoing currency war. That is creating investing conditions unlike anything most of us have ever seen before. There’s a reason why very few money managers have been able to make any profits over the last year and most of them have lost money. That reason is an ever-changing investing environment.

As most of you probably already know my investing strategy is based around cycles, sentiment, a long-term bull market in precious metals, and a dash of technical analysis thrown in to help spot entry and exit points. Those tools give me a rough outline of what to expect going forward. I then place my trades based on the best odds for success. However, none of that excuses me of the responsibility to change my mind if the market tells me my expectations are wrong. It is precisely the ability to reverse direction 180° that enabled us to generate a 25% plus gain in the model portfolio during the last six months, despite being in a market that has confounded most professional money managers. Additionally, our portfolio has always been unleveraged with never more than 75% of capital invested at any one time. I daresay that, on a risk-adjusted basis, the SMT model portfolio has outperformed probably 99% of the money managers in the world.

As an example let’s use my recent expectation for 2012 to be one of the worst years in history. First off,  let me explain how I came to that expectation. To begin with, the dollar’s three year cycle low was due to bottom in the spring of 2011. And indeed, it actually did bottom in May of 2011. Further, the stock market’s four year cycle low is due to bottom in the fall of 2012.

Since most bear markets tend to last about 1 1/2 – 2 1/2 years it was reasonable to expect that the next bear market would begin as the dollar started to rally out of its three year cycle low. Low and behold what happened in May as the dollar cycle bottomed? That’s right, the stock market started to collapse as deflationary forces began to push the dollar higher and asset prices down. Everything was unfolding exactly as our cycles tool had suggested it would.

However, in late November the markets started to deviate from our expectations. As the dollar continued to rally stocks began to decouple from the strong dollar. At this point one could either stubbornly hold on to their bearish outlook and lose money, or they could accept that the market was doing something different than what they expected, change their mind, and deal with reality as it is, instead of how they wished it to be.

The fact that the S&P wasn’t doing what it should have been doing was the main reason I’ve been warning (pleading really) with traders not to sell short. This market should have begun the move down into a daily cycle low two weeks ago. The fact that it refuses to move down into that overdue correction is sending a strong message that something else is going on.

The inability to change one’s mind when the market tells you that you are wrong is one of the toughest habits to break, but one that is absolutely necessary if you are going to make money in this business. For whatever evolutionary reason, human beings have a very hard time admitting when they are wrong, and an even harder time reversing their thinking 180° even after they know they’re wrong. For the vast majority of traders it is less painful to lose money than it is to admit an error and reverse a trade.

In my previous post I went over my expectation for gold to move down into its daily cycle low along with the stock market. This should have corresponded with the dollar rallying out of its cycle low. On Wednesday morning everything was set up perfectly for this to unfold. Gold had formed a swing high and was beginning the move down into its daily cycle low, stocks were in the process of reversing back down through the coil, and the dollar had bounced off of the 50 day moving average and was holding strongly above support at 80, clearly in the process of putting in a cycle bottom.

However, as you can see from the chart all of that changed Wednesday afternoon on the Fed statement. The stock market reversed the early-morning weakness, closing strongly. Gold reversed dramatically, closing up over $40, and the dollar collapsed back down through 80 negating what would have almost certainly been a powerful rally out of that cycle bottom. One could either ignore what had just happened, thus exacerbating losing trades, or they could recognize that something fundamentally changed that afternoon and quickly get on the right side of the market.

That is exactly what we did. When the dollar reversed and gold started to rally we immediately bit the bullet on our long UUP trade, took a small loss, and reentered GDX. None of our tools (cycles, sentiment, or technicals) were predicting this. However, that still doesn’t give us an excuse to ignore what had happened and quickly make the correct adjustment.

Bernanke didn’t actually confirm QE3 Wednesday afternoon, but the market obviously perceived the Fed statement as a guarantee that QE3 is in the works. That has the potential to break the dollar’s rally out of its three year cycle low and derail the expected move by stocks down into a four year cycle low later this year.

If Bernanke can break the dollar rally and get the dollar moving south again there is no way we are going to experience a deflationary bear market this year. In this scenario 2012 would be the beginning of an inflationary period, culminating in a dollar crisis at the next three year cycle low, due in late 2014. If this is what is about to unfold then we need to alter our expectations from a deflationary bear market to an inflationary bull market.

The four year cycle low for stocks, instead of occurring in late 2012 would probably get stretched out to late 2014. And the recession we should experience this year will be pushed out to 2013/2014 once inflation raises high enough to poison the economy.

The big question now is; did Bernanke break the dollar rally? Confirmation will come once the dollar finds its daily cycle low, and if the rally out of that low fails to move to new highs and rolls over quickly forming a new pattern of lower lows and lower highs.

If this scenario plays out then we can jettison the deflationary bear market hypothesis and begin positioning for the inflationary scenario which should culminate with a dollar crisis in late 2014. This scenario also has the potential to drive the bubble phase of the gold bull market.

A lot is riding on the dollar right now.

265 thoughts on “ARGUING WITH THE MARKET

  1. Russell

    Your post summarizes one flaw with cycles. You teach us that cycles are basic responses to human emotional trading which has shown some predictability. Cycles only apply to sectors or broad based indexes as to capture large group sentiment or emotion, so as not to be subject to manipulation. Clearly the US Dollar is manipulated, and many of our assumptions of other sectors is based on the dollar cycle. We therefore are constantly subject to cycle theory expectations being trumped by the Fed actions. The old argument that the news is only an excuse for what the cycles were going to do anyway seems invalid. Despite this flaw which could kill your account if over-leveraged, you are commended on your 25% gain. Thanks for the great work.

  2. Unknown

    Ditto Russell.

    If the news aborts, or otherwise trumps cycles, are they useful?

    One can make the argument they are so long as the markets remain “normal” and every day is a slow news day. Otherwise, you had better be ready to turn on a dime…… just as any investor/trader must do using any methodology.

  3. JEFFtheFLEA

    flaw? yes cycles are not perfect, but when gary reconizes a fundemental change, well i would say that fills the gap.

    cycles are proffit takeing events and that will continue. I think anything better would have to be a crystal ball.

  4. TZ(8155)


    I like Interactive Brokers (.com).

    They are based all over the world and will pretty much open an account for anyone, in any currency, trading any security, at any exchange, in any timezone, at any time.

    Will that work for you?

  5. TZ(8155)

    Something for fun. I wrote the post below the night BEFORE the big surge up in everything on wed Fed day (when gary changed gears and we all mostly went long.) It was late at night and I didn’t post it, but here it is:

    If the wedge pattern in gold the last two weeks or so breaks HIGHER (which isn’t as common but does happen as in jul 2011) then we are looking at a SHARP rise of $100 or more.

    We are close to the main daily downtrend line on gold (1690 approx). So if we, by some chance, went higher over that line a quick rise would make sense (it would be panic buying).

    The opposite view would be that the downtrend line should give some resistance, we are unlikely to simply ramp above it on first attempt, and the bankers/fed will push it hard there as best they can. There is also gary’s cycle stuff expecting a drop soon.

    I have to say that I can see reasons for the sharp move higher namely because it hurts the most people and leaves us behind.

    Most of us are OUT and, ironically, PATIENTLY waiting (namely because we just went through a pretty violent few months of correction).

    If we all (mostly) weren’t so calm about “It’s ok…we can get in on the next dip. We aren’t really missing much yet…” then I would conversely think we were closer to the top.

  6. TZ(8155)

    This is currently similar to last fall for me. I didn’t buy the low (who did except for Doc?) and I haven’t found a low risk (meaning small stop) entry yet to get in leveraged like I prefer. (gold futures).

    I have a core position (insurance mostly) and some GDX (although I sold it at Fri close cause I’m going to roll it over into a different single-stock futures contract.)

    I’m expecting some sort of pullback early this week to start going leveraged. Not necessarily a big pullback, but something to correct the most recent surge a bit (retrace back to the breakout for example).

    It is late in the rally for this move up and such an entry might not hold, but I will try and then re-buy lower if it stops out.

  7. Tiho

    I agree with the view of the post and the Dollars decline.

    However I don’t know how long the inflationary cycle will last. How do you know? Cycles again? Predicting the future? You seem to be throwing out numbers like 2013 / 2014 or whatever, like you are Nostradamus or Baba Vanga (google this lady – its quite funny).

    Just let the Dollar keeping falling until it bottoms out, market discounts everything and than in real time, call its bottom. It could be six months or it could be two years. Leave predicting to weather forecasters or astrologists.

    Also, smart money new the Dollar topped much earlier than Fed statement. Even your own charts show majority of asset classes bottomed before DXY topped. That is because the Euro was the only major currency left falling.

    Majority of risk assets and other global currencies bottomed against the Dollar around October 04th 2011. Every currency from Brazilian Real to Russian Rubble, from Korean Won to Australian Dollar, from Canadian Dollar to Singapore Dollar never went lower than their October low. Afterwards, liquidity injection LTRO by ECB and extremely negative sentiment bottomed precious metals in December.

    You were still long DXY into late January into extremely bullish sentiment, which means market discounted the bottom 4 months before “you figured it out”. Should have done a 180 without a loss, much much earlier.

    Never the less, good post. Finally, Dollar has already confirmed its downtrend, regardless of what DXY cycle says. Once again, Euro or DXY is not a necessary tool to figure that out. Just look at the Dollar vs all other global currencies. It speaks of major weakness.

    I’d also expect a correction now that majority have capitulated on their S&P shorts due to the “every so important” Fed statement (end sarcasm). Funny the S&P 500 has already bottomed four months ago at 1075, whole 250 points prior to the statement itself.

  8. TZ(8155)

    For those who don’t know GDX trades as a “single stock future” (among about a thousand other stocks).

    The basics of it are that a SSF lets you go up to 5x leverage instead of 2x with a margin account (or 1x with a cash account).

    There are a few other twists and turns, but just an FYI that it is available if somebody wants to start playing with fire 🙂

    You can read about SSFs on the internet and OneChicago (the exchange where they trade) if you so desire. Not all brokers carry them (IB does).

  9. TZ(8155)

    Fed monetary base increasing again. Those swaps to the EU or something else, but the printing appears on again:


  10. Bill

    Hi – was away – back now.

    Haven’t read the post yet – am sure it’s great.

    Just wanted too set 1 thing straight: Olympic weightlifters and bodybuilders are weenies! That’s right, weenies!

    POWERLIFTING is where it’s at!

    See 2011 IPF World Championship Dmitry Ivanov 460 kg Squat at …

    Gary, notice how EASY this guy gets up. And this guy is young – he’ll go a lot farther.

  11. Rob L


    If gold does, in fact, retrace the breakout move, what does your gut tell you about GDX – will it do the same, or will it hold up better during a retracement?

  12. Keys

    Predicting the future is hard enough, now people want month to month timing…ptt good luck with that! Cycles don’t fail, but the real time interpretation does…Anything in real time is hard…how many sold their house and bought in March 09 as the world ended….How many bought oil at 35? Some did I guess, but for the most part pttt too many looking for gypsy magic…maybe one should try voodoo…give it a break…

    All tools fails, further we have interpretation of tools as well,….even today, the 08 crash, still hasn’t be understood in terms of cycles…doesn’t mean cycles failed…just means the interpretation is too hard to figure out even now.

    Too many chartists, too many missing the big picture, too many people following pro USD long-term notions.

    Of course traders will time and do their thing…no offence meant to that…but in terms of the USD turning and people being shocked by it, really! I get traders riding a trend, but when the USD(the worst currency in the world) turns one shouldn’t be surprised. As a reserve currency, that deflates quicker than a popped balloon, the sickness in that system is all but apparent.
    The US has all of the traits of a world power failing…no different from any other former power…we are talking millenniums of civilization, not years…Clear as day…

    And despite gold being a worthless metal in all regards, it has been used forever in terms of trade…for whatever reason humans are programmed to like shiny yellow things…I guess logic will get you out of the trade, but millenniums of history suggest otherwise……and of course gold will get overvalued and we need to sell, blah blah blah…and as the FED loses power we should rush back into USD related products…but that is for another day.

  13. Tiho

    You couldn’t buy Oil at $35 in late 08, unless you bought spot and got it delivered in physical raw barrel form. While spot was trading at $35, contango was huge, and upto $55 for a 3 year long dated futures.

    Now three years later Oil is a $100, which means you barley doubled your money (still good return) due to the forward curve… unless you bought physical Crude and rented a warehouse with security guards and German shepards.

  14. Keys


    Sorry you missed the point on that one…Wow!

    Any trader that bought oil related when oil was at 35 made a mint….I guess you weren’t one of them then…sorry for your loss…perhaps you won’t miss the gold bull going forward…

  15. TZ(8155)


    I think gold could make a sharp run below 1700 in the next day or so to clean out some of the chasing action. Not saying it would last long but it would be good enough for me to get in.

    As for GDX I still continue to not like it. Any buys continue to be ANTICIPATORY since GDX shows zero outperformance against 50/50 gold/silver mix (using CEF).

    Yes, yes, I agree that it LOOKS good (GDX triangle breaking out; look at a long term weekly chart) and that this just “has to be the time” and the “miners are making money” etc, etc.

    But the fact is that I have been in numerous periods just like that before with GDX and none of them worked. I’m still hesitant to guess “now is the time” and would rather have it show me.

    So maybe this is it, maybe not.

    Still, I’m inclined to bet on this one this time due to the 1yr large GDX triangle I posted a while ago. (I’m not going leveraged and I’m going to try to keep it at a level that doesn’t hurt too bad if head down. Below 52 would be the exit point from my view…9% lower).

    I still don’t like that ratio chart and I’m still gonna kick myself if we continue lower and I went against my contrary judgement.
    But seems like a good time to give it a try.

  16. TZ(8155)

    And I’m not saying this thing even dips here at all. I went through this last fall where it just kept climbing.

    Gary has good comments tonight about that.

  17. Keys

    Well I guess I shouldn’t be up…but I am …on going insomnia issue for the last 5 years or so…a real pain in the arse.
    But going forward, the turn on Wednesday has me excited, not in terms of short-term gain which is what it is, but in terms of the long-term changes…..interested on how the market reacts to the obvious change…looking for info…see how the market reacts and more importantly how quickly it forgets the info…This info will help going forward on my perception of how much time we have left on this bull….
    Really this gold bull could be over tomorrow, if we had a 100% rebellion against the US debt market…this slow bleed is what gives the gold bull so much power.
    This week I would expect, perhaps, and maybe not, a sharp move down in PMs…profit taking, drive stops, short-terms sell out, etc…but interested after the fact…we will see…a little excited perhaps, since the market has been so boring lately…but none the less….as an “old turkey” there be work to do, which requires constant testing of the method.

    Alright try to rest those eyes, but one of those nights….If we get a sharp turn this week in PM’s btw, expect it, but a point to buy more, and to not sell into.

  18. Tiho

    Keys – don’t worry about what I bought or didn’t buy. And don’t worry about which bull or bear I will participate in. Let me make my own decisions and you make your own. You don’t need to make assumptions of what I did or didn’t do.

    Just focus on the topic at hand and the point I made which is: You couldn’t buy Oil at $35. That is what inexperienced people who never trade futures and just look at the chart say. Oils huge contango in late 08/early 09 prevented you to buy anything close to $35 – that is all I said.

  19. William Wallace


    Every A-wave over the past 10 yrs moved back above the 150dma and then back tested it either within the first DC or the second. The 150dma was not as significant throughout this 10+ year gold bull as it was during this past C-wave. There were many MA’s that played as significant a role throughout the past 10 years as the 150dma did throughout the past 3 years. This is the problem for those who use 1 or 2 MA’s, they have absolutely no clue that others are just as effective at different times. Where gold is at in a cycle plays a big part in the effectiveness of a specific MA. Gold is due for a DCL, the 150dma is well in range to halt the decline now if gold begins to seek a DCL here, thats not to say its a certainty, we have to watch in real time.

  20. Keys

    Umm really nothing to say…I made a ton on oil 35…so, okay ..I guess you didn’t….sorry.

    ummm, this is a public blog, I would expect everyone to make their own choices, and not based upon an image on a blog…
    now is the gold bull, and frankly my insomnia. Since I am a closer to a cockroach at SMT in terms of survival, nobody wants to hear what I say, but I can withstand a nuclear blow up for my investing.

    Anyways, no issues, too tired…just stating what I know…I piss Gary off alot too btw….. 🙂 He doesn’t tell me so, but I know my nature…..

  21. Liquid Motion

    G Man,

    I get the impression you were standing in the witness box taking cross examination from the unrelenting prosecution.No need to save face here or explain your actions or predictions. After all its a free blog. Those that dont appreciate your work and approach are not worth responding to. As I’ve said before…no-one is 100% perfect. Everyone needs to take blame for their own actions/inactions.

    You raise a BIG question abt Benny breaking the dollar…and therefore dictating the direction of the stock market. Will he or wont he ?
    I have an even bigger question.
    What caused the dollar’s rally out of the 3 yr cycle low last year?
    AND then what caused its reversal in a very short time frame this year.
    Remembering these are not “normal” markets. By normal I mean that price discovery being achieved through market forces.

    Currencies are manipulated to suit their respective governments.
    I would add that the USD appreciation for the 2H11 was a factor of EURO debt issues and the fear factor/safe haven strategy combined with a high dose of expected ECB printing… AND coincidently the expiration of QEII/ non reappearance of QEIII.
    If by deduction then .. the dollars’ falling over into 2012-2014(via further debasement)…would precipitate an inflationary “bull” market in stocks…. then arent you just saying that markets are manipulated too? (using the inverse correlation as demonstrated in your charts and knowing how currencies move).If true then markets are not as predictable as one would or could assume under Cycles / TA / EWT or any other chosen methodology. I’m not saying your chosen career hasnt got legs , but would say you certainly have your work cut out for you.

    Its also a pre-requisite to engender stimulatory way of forcing investors (and it is coercion) to seek risk. Seeking risk and increasing velocity are understood to be the key ingredients to creating inflation via the so called “wealth effect”.

    However, I understand that the FED has a target now for INFLATION as measured by the CPCE @ 2 %. This is the holy grail for investing for the next 3 yrs. But its also a very dangerous blunt instrument.

    As for predictions…you are almost setting yourself up for attack again.
    Deflationary scenario for stronger dollar, inflationary scenario for weaker dollar….based on……

    One thing is perfectly clear to me…no-one knows what the future will foretell…an hyperinflationary depression or a deflationary depression or whatever!!! Not one person to date has been capable of producing sufficient evidence or plausible argument of either of those scenarios with absolute certainty.
    What may seem possible, can and more than likely will, turn very quickly.

    I like to keep in mind the agenda of the FED when assessing the path of the USD (et all major currencies)and markets in general.
    “Areas of GREY” are removed when you understand their ulterior motives.

    To me its almost as if what the FED (and perhaps you can throw in ECB and PBOC) want and are striving for, is what seems like a “Goldilocks” economy. One where their currency doesnt move too far out of kilter with the other’s and the inflation rate is kept within “desired” levels. So things arent too hot nor too cold….but just right.

    Watching the dollar too closely will not tell you the real story. We may very well be at the beginning of a very long period of uncertainty. Uncertainty brings the undesirable “saving not spending” “going to cash and not investing” mentality.

    When nothing becomes clear and the term “value” loses its real meaning, it is senseless to be arguing the potential and the consequences of the dollar collapsing, as it will still be measured in the context in which it is stated and for that matter so too is everything else.

  22. Keys


    This is normal for my insomnia, but are your normally up at this hour……no judgement!!! Just wow if you are!

    And day is lost tomorrow….good thing I am old turkey…

  23. William Wallace


    Always, I usually go to bed after the European open… didnt you ever see the fella’s talking about how I never sleep?

    Actually going to bed in a little while 🙂

  24. Keys


    Read it, never lived through it…Don’t know how you do it….insomina or me is nuts, half my brain is mush, the other half is ready to win the war on XYZ

    Anyways…..have a good X hours sleep, when you get it! Silver is down 2%, and gold too…interesting day tomorrow…

    Alright, I am closing my eyes, even if I don’t sleep….

    Good on all on the morrow!!!
    Again mush brain!

  25. Bill

    Gary, just read the report. Another classic and a good reminder for me to remove all bias, and just go w/the flow. Thanks much.

    FYI that Rusky squatting 460 is like your max of 190 on one side, another 190 on his left, and you riding on his shoulders. Amazing power. Ukraine also has some awesome lifters.

  26. Bill

    Gary, thinking further, I have a question for you. Assuming that cycles and sentiment give you a bias (as you pointed out in the article, for gold to go down in this case), how do you manage to flip 180 so fast? I mean, it’s really fast, and I’m just wanting to learn what mindset you have or what you do to stay so totally neutral and ready to flip. Its really amazing. I’m always doubting breakouts. Like when gold went up the other day, I expected it to fail the next day. But it didn’t.

  27. Bill

    I thought gold would fall because I figured the dollar longs would have to cover, causing a brief and furious rally. I was wrong.

  28. TZ(8155)


    “……on going insomnia issue for the last 5 years or so….”

    Stop using any fragrance products – cologne, fabric softener, lotion/gel/deo/etc. Your insomnia might go away in 2-3 days.

  29. TZ(8155)


    No idea.
    It is a matter of cost vs gain.

    There is a cost to walk gold down as they sell into it. As long as they hit as many or more stops compared to what they sell (their cost) to get lower, they can continue selling.

  30. JEFFtheFLEA

    tz ive jumped in and out 3 times in 3 days and took proffit. not much in the way of gains, about 18 dollars lol. i just cant stomach buying on day 18, 19, 20, . went flat early last night and almost went long the dollar. im still flat and waiting for the daily cycle

  31. TZ(8155)


    A thought experiment for you.

    If you had $1 billion in trading money and were able to push gold up or down, how would you run stops to make money?

    How would you design your program?

    When would you turn it on?

    How would the program measure the effectiveness of its selling pressure?

    When would the program know to stop?

  32. TZ(8155)

    I don’t have $1 billion.

    But if I did I would have a pretty good idea how to design the algorithm.

    Think it over, it isn’t that hard really.

  33. JEFFtheFLEA

    well, i would want to be takeing proffits and tradeing the regression to the mean. Like gary says, thats the most proffitable tradeing stratagy ever. use the money to run stops? by the time stops got hit, i would want to be flat. so im not sure. 1680 would be a spot to buy im hopeing

  34. sophia

    GERMANY FINMIN: Greece hasn’t fully implemented reforms

    I think that the Germans are losing their patience with the Greeks…Fun times ahead…

  35. Keys


    Thanks for the advice…but its normal in my family, bunch of sleep walking nutcases…I think I might be a zombie! Lol

  36. William Wallace


    The 150 SMA, not EMA…apply a 150SMA and EMA to a daily and you’ll see that gold found its ICL’s throughout this entire C-wave on the 150SMA, not the EMA.

  37. Shalom Bernanke

    Good morning, fellas. Looks like we might be getting the gold pullback into a daily cycle low. None of my stuff is for sale, just sitting tight.

    TZ’s idea of trading single stock futures on GDX is something I have zero interest in. Zero volume on any of the near term contracts doesn’t bode well for a trader.

  38. William Wallace

    The SPX didnt seek a DCL in the first QE2 stretched DC until the Golden Cross was well in effect, If we are to see this DC playout similar, and it looks to be the case, when the 50 crosses over the 200 there will be another week or so of upside. Keep in mind the first and second DC’s after QE were 50+ day cycles. Gold should follow into the $1770-$1800 level before seeking a DCL.

  39. TZ(8155)


    There are 15 lots on each bid and ask for GDX SSFs. Approx $85,000.

    You need to look at the “dividend protected” contract. The non-div protected has poor market making true.

    I dare say $85k will be enough for many here per single trade, although, yes, SSFs have their own share of problems including that your are in another derivative.

    GDX itself is a derivative, however, so “in for a penny…”.

  40. TZ(8155)

    And the spread is about 9-10 cents or about 0.2%.

    It is acceptable and allows certain strategies like stock leverage in an IRA without using options. (But this is not financial advice. Buyer beware).

  41. stevennewyork

    What is the general feeling about the gaps for GDX or NUGT (and others) being filled before another leg higher? NUGT, for example, has a gap between 24.74-24.91. Thoughts on the importance of these gaps and whether they will get filled? Appreciated in advance.

  42. stevennewyork

    Thanks Aaron. That makes sense, but that doesn’t apply to GDX, right? That is not a leveraged ETF. What I’m trying to figure out is if I purchase more of any of these here or wait if there is a good chance the gap will be filled before they hopefully go higher.

  43. Gary

    What you should be asking yourself is whether it’s worth it to risk missing any more of the move if it doesn’t fill.

    All but a few pennies of the gap in GDX filled on Thursday any way.

    Gaps in the leveraged funds are meaningless as they are driven by the underlying asset.

  44. Aaron

    That is correct, GDX isnt leveraged… so gap fill rules should apply.
    Just remember that in runaway and breakouts, gaps can remain unfilled.

  45. Aaron

    I mostly trade futures, so im waiting for the DCL to add to my super small gold position. GDX should do very well though once that is out of the way.
    Much like you, today I added miners to my 401K.

  46. Gary

    Who knows how long that process will take. You could be sitting in shorts for months or years while that capital could be working in the gold bull.

  47. TZ(8155)

    Sold my GDX and CEF. Back to core and cash position.

    Shades of last fall. When I chase something I usually regret it.

    I do not think gary is wrong and I suspect we DO continue up, but I simply have a different style and I like to go leveraged on liquid stuff (24hr) with small stops.

    I’m gonna give time for a better entry as per my approach.

    (Before somebody says “Just get in and buy something” remember a) I have a core; b) I think gary is doing fine; c) I have a different style and d) I went through this last fall and still did amazingly well. It just took time to engage)

  48. TZ(8155)

    I’m NOT so much thinking ‘pullback’. I’m thinking that this is not a stable position FOR ME with MY MINDSET. There is a difference. Everybody needs to understand their approach and mentality.

    I am actually more stable trading higher leverage with futures and small stops. There has been no real futures entry for me yet so I can’t get a position so far (by my calcuations remember – clearly a person can buy and ‘get a position’ at any time.)

    So I considered (and did) buy GDX which gary likes and which doesn’t show a breakout yet. I’m anticipating and going against my previous advice and that ratio chart. But upon doing it I can tell it simply doesn’t suit me for the size and parameters that I work well with.

    Even going to ONLY 30% GDX in my portfolio opens me up to a relatively large risk (in my mind) if we drop to 52 and head lower (which I don’t think will happen, but “always plan for the unexpected”).

    30% of my portfolio won’t give me anywhere near the returns that suit me (the lower position actually irritates me and causes loss of ‘mental capital’.)

    I usually prefer 2x-4x. (But like I said there has been no entry so far.)

    And of course buying here and then looking at a gold chart which is straight up for 1 month just adds to the consternation.

    My head is saying “you are buying a straight up ramp…this usually doesnt’ work for you…and if/when it reverses even the smallest you will panic out”. All true.

    I have ways of buying and holding and will join you guys, but I’m simply unable to do it well on GDX here.

    PS: strong runaway bull mkts do exactly that…they runaway and leave people who can’t buy behind, so think hard before joining me. It simply isn’t my way for now.

  49. TZ(8155)

    >This is exactly what one would expect if a runaway move is starting.

    Remember with my technique it only takes a single sharp spike down (within certain parameters, etc) for me to get engaged at 3x+

    I’m not just out and staring at the walls. My orders are live at this moment.

    Just want to put my views in perspective. Going 75% or so in GDX just doesn’t work as well for me. And it is a harder sell cause the ratio chart again metal isn’t postive either.

  50. TZ(8155)

    >For the last couple of weeks its been – exit or short the European open, go long before US open.

    If you see the study on the LBMA pricing manipulation it shows that has actually been the case for years now.

  51. riley

    WW Not sure? Short euro open? I’ve been shorting about 0100 est then reversing long around 0500=0600 est. Is Euro open same as London open?

  52. riley

    WW have tight stops and basically scalping. Do you have any odds on runaway as opposed stretched cycle? Can’t imagine anyway to assess, but will ask. As always, in this game watch the tape. I’ll never ask for your intraday plays as know impossible to call plays as switch constantly, but appreciate slightly longer term outlooks.

    Must say looking for my usual stretched wick on candle for a longer term entry hopefully with dcl as in timing band. Just never used strong ma’s until found your advise. If hits 150ma will play but thinking not get there until a so called 2nd dcl?

  53. William Wallace


    European markets open 3am.

    Right now im leaning more towards SPX stretched cycles, QE cycles run 50+ days, if they run longer then we can talk about runaway moves.

    As for a gold DCL target we will have to see how far this DC runs before topping.

  54. ver


    Thanks for your feedback re: the 150 DMA backtest.

    I agree with you that the prudent outlook is a stretched daily cycle in stocks rather than a runaway. But either way, I’m thinking when this correction arrives it’s going to be sharp and deep when the “buy the morning dip” trade fails and everyone runs for the exits at the same time. From the strength of the market we’re probably looking at new highs next daily cycle, but I’m uninterested being long anything through the next correction. Gold and miners may resist but I wouldn’t bet money that they will escape it altogether.

  55. William Wallace


    If you take a look at the two daily cycles after QE2 started, so far the first DC is looking very similar to this one, it was a 55 day cycle if I remember correctly and topped at 49. The correction was to the 50dma. The second daily cycle was a 50 day cycle that topped on day 50, putting in a DCL on that day. The third cycle formed the left shoulder of the H&S top and that DC decline fell well below the 50dma. If we see similar cycles here the SPX should be topping soon, with a DCL around the 50dma…the next DC making new highs.

  56. William Wallace


    I mentioned the other day that miners will not resist declining equities like gold will, we seen that this morning. Gold bounced out of its overnight bottom before the market opened and futures were still deep in the red. Miners remained down until the market turned.

  57. Brutus Maximus

    ….. I daresay that, on a risk-adjusted basis, the SMT model portfolio has outperformed probably 99% of the money managers in the world….. Gary give it up already to compare yourself and your 6 month “hypothetical“ model portfolio to money managers
    and btw. there is a lot more to the term “risk adjusted“ than being only 75% invested.

  58. Tiho

    Didn’t you know that its very hard to outperform hedge fund managers? They are super smart with their physics degrees. All that uni study and in the end, they all herd like sheep.

    Their recent herds have been short Euro (this blog was part of it until recently) and long Treasuries / Bunds / JBGs / Gilts. All are going to end up in tears.

    p.s. Look at the US Dollar crash vs Mexican Peso! That is a beautiful, isn’t it?

  59. Tiho

    I forgot to say, the biggest group-think herd-mentally consensus-trade of 2011, spilling into 2012 is to short Wheat.

    It is so obvious that we are bottoming out in this fundamentally strong commodity, but nonetheless Commitment of Traders report shows historical record high net short positions.

    Go home and buy yourself some Wheat. Leave it in your room until it doubles in 2012…

  60. Danno

    The $Silver Adam & Adam double bottom that tagged 26.15 twice will generate a buy signal if price can close above 35.70 (the highest peak between the two lows). If silver can’t manage to close above 35.70 the pattern could morph into a triple bottom. Just FYI.

  61. Aaron

    Gold gained more in the month of January (almost $ 200)than it did last July! I think Feb could be rocky…and full of opportunities!

  62. Danno

    Rod (RJ),
    Personally, I would stay in cash for now. If I already had a profitable PM long position with a trailing stop loss then I would hold that position. fwiw

  63. Shalom Bernanke

    The first thing Danno should do with this hypothetical $10K is buy a subscription to SMT. Not only would he then know where to put the other $9,800 but he also wouldn’t waste any more time picking round bottoms.

  64. sophia

    The Bavarian chapter of Germany’s IG Metall metalworking
    and engineering union on Tuesday called for a 6.5% pay rise demand in
    the upcoming sector wage round. Last week, the influential
    Baden-Wuerttemberg IG Metall chapter had posed a similar demand. Next
    Tuesday, the national IG Metall board is scheduled to issue in Frankfurt
    a pay demand for this year’s wage round.

  65. smt_troll

    “Go home and buy yourself some Wheat. Leave it in your room until it doubles in 2012…”

    Are you joking? Global stockpiles will certainly end the year at their highest level in a decade (and possibly their highest level ever). Australia (the largest exporter after the United States) will have a record crop this year (28 million tons, exporting about 22 million of that), the total grain harvest in Russia could reach 100 million tons this year (they are exporting record amounts at the moment), Germany will see a much increased harvest up to 25 million tons, the projected production from Argentina just got jacked up 8 percent to 14 million tons, and in the U.S. wheat production (the 800 pound gorilla, as far as agricultural output goes) will go from 54.4 million tons in 2011 to 59 million tons in 2012.

    Oh, and corn is headed down (production this year is forecast at 860 million tons – an all time record), since there won’t be forty percent of the U.S. crop on its way to the gas tank now that the ethanol subsidy has expired (hint: cheaper corn will reduce wheat demand due to substitution). December wheat is at 712 as I write this. I am increasing my short position, as it is on its way lower – much lower.

  66. Greenspansconscience

    EXK trying to break out of the triangle consolidation on the weekly chart. It’s going to need to stick this gains through the end of the week, which will be tough.

    AXU has already done this on its weekly chart. I really do feel like AXU is good predictor for the whole sector. It formed a 123 reversal a couple of days ahead of everyone else.

  67. Greenspansconscience

    I took a huge leveraged position in EXK and AXU in the AM of the day AXU formed its reversal.

    I jumped the gun relative to Gary, but I also subscribe to Doc, who was ultrabullish at the time. Of course Gary has blown away Doc’s returns since silver crashed last spring, but Doc absolutley nailed this one. It was definitely a contrarian call.

    I listen to both of these guys. They should merge their talents an start a managed fund. (I believe Doc already has a fund.)

  68. Greenspansconscience

    Still waiting for a pull back to add more, but like I said i kind of already went nuts on my initial positions so there is no stress if we keep running.

    Farmgirl also had this nailed, but she got shaken out literally the day before NUGT reversed IIRC. It’s up like 30% since it bottomed. Hope she got back in quickly.

  69. Greenspansconscience

    I will say this, there is a heck of a lot of buying pressure on the miners right now. If you have no position, today is as good a day as any to get in. Of course the 10dma would be better, and the 20dma better yet. I don’t think we make it back to the 20dma just yet though. Probably at higher levels.

  70. mikezza

    i don’t know if you made this call yet but another cycle guy seems to think that gold may have already put in its dcl on 1/20. any possibility of that in your opinion

  71. Shalom Bernanke

    Short term it appears miners might have some trouble chewing through the 200 day MA. Maybe we’ll get a pullback or some sideways action over the next few days allowing us to add more. I’m well loaded but still have confetti I want out of, exchanging it for miners into dips only. No way I’m going to try and sidestep any pullbacks at this point, so keeping everything and hoping to buy another pullback.

  72. Shalom Bernanke

    As hard as it was to buy miners with Gary this round, I think the bigger problem most traders will have is staying with the positions after big run ups. As always, I’d wager most traders will take profits far too early in the move, although I hope they are able to stay focused on the prize.

  73. gold silver troll

    GDX still seems really really tied to the stock market…

    unless this relationship visibly changes, no point being in miners when stocks begin tanking

    best to go gold and silver

  74. Greenspansconscience

    Why not look at the ratio charts and buy mining stocks when they are undervalued and sell them whenthey are over valued.

    gary made a good point, the HUI went from 150 to over 600 in 3 years. That was an incredible run if you bought anywhere near the bottom. We have been consolidating for about a year now and held support at 480 multiple times. we just had what looks like a huge reversal in the miners a few days ago. I would say the miners are worth a shot here because if they do break out above their all tim highs, they will leave pretty much every asset on the planet in the dust.

  75. Dan

    Think people are just confused as to whats going on. Lots of good traders I follow put on hedges/sold some positions this morning and now PMs are starting to turn green.

  76. sophia


    Sounds fun…best of luck…just looking as a spectator for the time being…1360 on the S&P before the end of the week? We are getting stretched, no?

  77. William Wallace


    Definitely stretched, I mentioned yesterday that the first and second daily cycles of QE2 were 50+ day cycles, so that may be exactly what were seeing here.

  78. ease

    Whose there Sophia?

    Actually I have been peeking in and out today on the market moves, not the blog. I had sell prices if we went higher, however market turned and now appears to be sneaking back up again. So still holding strong hand status.

    Been busy gathering all personal tax documents to send to my accountant next week. Business Books were closed and submitted last week. I like to file early and get it all behind me.
    So once I put it all in the their hands, I can rest easier.

    I leave London early am Saturday, have a week to get all my errands run and then down to FL for two weeks with Grand kids and house hunting again for hubby.

    I would have loved to be trading with WW, however decided to wait for someone to call a DCL and will jump in then. For now, getting the dreary hate to do it work done.

    My Momma taught me a long time ago, to get my chores done first and then go play, and that seems to work to make life more enjoyable. 🙂

  79. sophia

    at ease,

    you seem indeed pretty busy! I really hope that we will manage to meet up next time you come.
    have a great week and keep warm!

  80. coolkevs

    Demark update – could be important for equities:
    ZN – 10 year treasury futures are showing a Perfected DAILY Sequential 13 SELL yesterday as well as a Perfected WEEKLY Sequential SELL signal this week (this is price not yield) – good for 12 weeks. This goes along with the perfected MONTHLY SELL Setup that recorded last month, good through April. Treasuries should be a SELL over the next few weeks/months! However, not seeing this with TLT.

  81. ver

    Hmmm, 4 down days at the end of an extended move. I wonder if the mechanical dip buyers are going to get their first surprise soon. Amazon won’t help things.

  82. ver

    All this talk of black candles. The one on GDX today even gives me the willies, especially after two rejections at the 200 DMA and all the momentum chasers.

    That said that SPY BoW is no joke.

  83. ease

    We need to plan something ahead of time, I am back first week of June. At least we will have great weather to get out to meet. This will be our last summer in London and then moving back to VA end of summer for good as husband is retiring. I do know we are planning a summer trip up to Eamonn land. We have wanted to visit Ireland Wales and Scotland since we got here years ago and it seems it’s the most difficult area to tour unless you have a great running vehicle. We use a clunker over here, and use the tube for the city, I wouldn’t trust the vehicle for long distance trips. 🙂
    My last opportunity to see the other green and hopefully meet up with Eamonn also. 🙂

  84. Tiho


    Everything you said is true and everything you said has been priced in, with RECORD short positions due to RECORD high inventories.

    That is why you should BUY some wheat and not increase your short positions, you understand? You are doing the same thing as everyone else and quoting the same demand & supply like everyone, that is already obviously in the price.

    Wheat will go much higher than $9 in 2012, which was the peak in 2011!

  85. riley

    Tiho I respect all opinions and listen to all. Not involved in wheat nor probably ever, but you have gained my curiosity. I will watch wheat this yr.

    Now I have seen nat gas prices continously drop as supply becomes available. Chesapeake cut production due to over-supply. No known comparison, but seems logical larger supply decreased price until production decreased. I know farmers will switch to soybeans or corn until price adjusts. I ask in ignorance how wheat can go much higher this yr until change in supply(weather or change in crops) Curious obsever?

  86. riley

    WW if you are on board tonight, gold really crawling. I plan on taking a short around 1:30-2:00 if get spike. Did okay last 2 nights but usually miss U.S. open spike as have to sleep more than you. Still carrying 1 long sorta ole turkey with 1712 area stop(my 9day sma)

    To all, I can’t get handle on currencies, they are baffling me. I give up. Thank goodness for gold core.

  87. Arive


    It’s that dam AMAZON PRIME Service that is bleeding them!

    I know lonely retirees who order small items almost daily just to get the thrill of the Brown truck appearing.

  88. sophia


    Copper indeed doesn’t seem to believe in this morning rally so far…but we could still grind higher….I really don’t understand how nobody wanted Silver in Dec at 27$ and they all wanted it 25% higher!!

  89. mikezza

    thanks for pointing out your sept 10 thru jan 11 analog. the market is behaving much the same so will continue to follow along for parallels. ltro possibly having same effect as qe

  90. mikezza

    is your runaway move theory based on something that you see in the cycles or is it based on something in the data and central bank activity

  91. Gary

    It’s based in part on the extremely stretched nature of the daily cycle.

    If the S&P moves back to new highs I would have to assume that a runaway move is in progress with corrective parameters of about 35-50 points.

  92. mikezza

    do you consider the move from sept 10 to feb 11 to be a runaway move. i think this is a good parallel with your idea that there will be one more daily cycle lower in the dollar before an intermediate bottom. interesting that the s&p rallied even after the dollar put in its low in nov 10. also worth noting that gold did rally but underperformed stocks. miners looked like the place to be

  93. Gary

    That wasn’t so much a runaway move as it was a QE fueled rally.

    Runaway moves have specific characteristics which include random corrections all of similar magnitude and duration.

  94. MikeStiller

    If you look back to the 2006 runaway move, the majority of the gains were seen in the first 19 weeks (14%). The last 17 weeks only had a 3.5% gain from there.

  95. William Wallace

    at ease,

    Very similar to the 03′ A-wave, straight grind higher with sideways chops on the way up until it topped and entered a B-wave, which retraced about half of the A-wave.

  96. ease

    I am sure you already know what I am will ask next. Let me know if and when you see any MA tops coming…
    I would like to get out before the top hits 🙂

  97. TZ(8155)

    I agree with TIHO on the wheat. Down wedge pattern last year with a fakeout to the downside Nov. Now heading higher with breakout around 720.

    I don’t play wheat but I would be long instead of short. You don’t want to be short with a pattern like that. It is too reliable.

  98. TZ(8155)

    Especially in an inflationary environment. All bets should be long or flat.

    (Not to mention that shorting is for people who don’t want to get rich.)

  99. sophia

    at ease,

    It could be ugly if stocks start turning…I held thru in December and it was really tough…Gald to have done so now, but I am out of 45% of it so far, just to be able to reload….

  100. ease

    I just haven’t been able to take a position long in mini gold to hold, as soon as I get in it drops and takes me out. LOL So holding my other positions

  101. Gary

    Buy high sell low. This is how people lose money in a bull market.

    The dollar is in full on collapse. Gold has put in an intermediate cycle low. The miners surged massively out of a 1-2-3 reversal.

    Does one really think they can successfully day trade something like that?

    If you hold Old Turkey you have great odds of getting rich. If you try to avoid every little wiggle you have great odds of getting poor.

    I think one is better off at this point recognizing and accepting that we are going to get caught in a DCL but it should be brief and back to making new highs soon anyway.

    We got what we needed, the dollar is on the down side of an intermediate cycle, strong trending moves are developing, yet people still want to trade like we were on the upside of the dollar cycle.

    Folks you have to learn to adapt when market conditions change.

  102. William Wallace

    at ease,

    I have said this many times and I will say it again…If your looking to hold futures your stops cant be tight, only when scalping, or as you mentioned you will continue to be whipsawed out of position.

  103. Gary

    Have you ever made any money with Demarks calls?

    What little I have seen it seems to be considerably worse than 50%. He appears to use a specific number of days as a sign that exhaustion has occurred. However there really is no preset number of days before we run out of sellers. As we have seen as long as Bernanke can keep the dollar falling who knows when a top will occur.

  104. ease

    I was so busy getting my entries into core accounts, (very happy with those) I never got a good entry into mini. With talk of dcl after a few attempts, figured I would wait.
    Just sharing thoughts or should I say fears of missing entry into runaway move in my mini as others are with core accounts waiting to add with dcl. 🙂

  105. Gary

    I would be very careful about trying to “trade” a daily cycle low at this point.

    If gold makes it past resistance at $1750 it could quickly spurt up to $1800 and the miners could break through the 200 DMA for good.

    At this point it’s probably best to just accept that one is going to have to weather a DC correction at some point and not worry too much about it.

  106. William Wallace

    at ease,

    To scalp gold futures you really need to understand the way gold trades, for example…from session open last night gold was in a complete chop fest, you dont even attempt to enter trades there, or you will just be chewed up and spit out…then later into the session things began to calm down after most Asian markets closed, in which stock and gold futures began a steady uptrend, this is where you want to enter with a tight stop. You need to be able to recognize when a trend has developed, and enter as close to the bottom or top as possible. Its the same on shorter time frames (for scalping decent moves) as it is on a daily time frame (for daily cycles).

  107. sophia


    …and you need to add: DO NOT SLEEP at any time…LOL, seriously, are you like Gary sleeping less than 4 hours a night?
    Are you taking naps like SB??

  108. ease

    That’s right Sophia, You don’t get much sleep with futures. Unless you just buy and hold. 🙂 That is why I was looking for a low entry point. Get into and ride. 🙂

  109. ease

    I was watching to see how you were shorting the European market on open and long the US, but still didn’t see those entries. Must have been when I was nodding off… waiting… LOL

  110. ease

    Yep, have learned a lot since joining here. Sometimes I need that PUSH to jump in. At times my thinking gets stuck in circles and I can’t see the forest from the trees, so have to ask for directions. Not afraid to admit I am lost at times and need some help. 🙂

  111. Veronica

    YW Smartbullion. An interesting note about the Nasdaq composite and how it behaved very closely to gold pricewise before it’s parabolic run. It topped at just over 2000, corrected back to just under 1500, rallied to 1770 and then had a final meltdown to 1357 before rallying almost nonstop to 5000. I don’t think this scenario is a high % one for gold but I think it can’t be ruled out completely.

  112. Tiho

    Credit for reversing on the Dollar call. It’s only been a week, but you sound more bearish on the “King Dollar” than me…

  113. Gary

    The difference is that I don’t bet against a cycle until there is a reason to. doing that on a regular basis will cause one to go broke.

  114. EricH

    I think you need to simmer with your conviction. Depending on action over the next few weeks, you can easily change your stance on where this is going.
    I agree this is going higher but the miners have been in a trading range for quite some time. Currently it is still trading below the 200 dma.
    Caution needs to be taken as the miners are starting to diverge with gold.

  115. Gary

    We’ve got the setup we’ve been waiting 5 months for. We have an intermediate top in the dollar, we have strong hand status, we have a break of the D-wave down trend, stops are close to our entry, and it’s early in an intermediate cycle, now isn’t the time to worry about wiggles.

    If one waits till it feels right then it’s already too late.

    If something unexpected happens I’ll make an adjustment if necessary, but as of right now it looks like Old Turkey is the correct strategy.

  116. Russell

    Gold is like the mythological Sirens.
    I’m trying to wait for a dcl to invest, but the Sirens keep luring with, “it’s a runaway move….you’re being left at the station while the train runs away.” Hopefully, I will resist the call until a dcl forms, so I don’t get crashed on the rocks.

  117. Neo


    Would you mind to tell us what´s your miners portofolio ?

    I am trying to do my own DOD, to start a core position in miners for the long therm.


  118. Sooth Sayah

    Just a comment about comparing the PMs to the Naz bubble. I remember working in a grocery store at the time the .com era was red hot. There would be a table of us in the coffee room swapping stories about how much money we made off this or that stock just yesterday. A friend of mine had a service that would release IPOs to him first thing in the morning. We would jump on them asap and make double digit returns selling shortly thereafter. I was 19 years old. If I walked into that same grocery store today, I wonder if the guys from the produce department are talking about how great Royal Gold is.

  119. Gary

    Now you see why I don’t try to get cute with my positions. In the blink of an eye another big move can happen and if your out you missed it and it’s gone.

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