ANATOMY OF A BUBBLE 101

This has the potential to be a top, or it could just intensify the bubble mentality even more, making it even that much more likely that investors get caught when the top arrives. The more times the market recovers the more convinced traders become that there is no risk thus causing them to hold too long and get trapped when the final top does occur.

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108 thoughts on “ANATOMY OF A BUBBLE 101

  1. loneranger

    Gary – thanks for the video. You are so right on the mark. I suffered through the DotCom bubble myself and luckily became aware of the real estate bubble as to not get sucked in. I remember during the DotCom run up how many people who worked for startups at minimum wages with the carrot of stock option incentives. Everyone eventually lost and many dreams vanished. Most startups collapsed.

    Kuddos on your consistency with the NASDAQ and recognizing the vertical phase of this impending bubble. I admit it took me a couple of months to get onboard. I hope your followers figure it out too and trust your experience.

    Keep up the good fight!

  2. RonL

    Gary I know you said this pullback in the NADDAQ is a intermediate half cycle. How far do you see this retracing and will that be the time to add shares or wait for the intermediate cycle low later in December?

    1. Gary Post author

      Ron,
      It’s late enough in the intermediate cycle and the S&P is close enough to the bull channel trend line that the best strategy right now is to control greed and wait for the ICL in January or February. We probably still have one more higher high ahead of the FOMC meeting but there just isn’t enough potential at this point to chase, especially not with leverage.

      Maybe just a partial unleveraged position just so you have some skin in the game, but wait for the ICL before you convert to leverage.

  3. RTTPD

    Gary ——

    Awesome video and on the money.

    I’ve listened to a few different radio programs over the last month, where folks that have invested in Cyrptos/Bitcoin have called in……

    You can both HEAR and FEEL the absolutely maniacal emotion in their voices as they converse with the host.

    They are exactly as you describe : They lose every ounce of discretion…. and in zombie-like lockstep, follow those directly in front them with market-order philosophy, just to enter the get-rich-overnight game.

    Again….. excellent video

    1. carlvan

      Great analysis, thank you Gary! This reminds me when I was a teen (long time ago!), was at my parents house, and one day my mother would tell my brother and me how excited she was to have found a new terrific system to make a lot of money quickly: at the time that “game” became famous for a couple of years, at least in my region in EU and you could not not loose at it. At least according to its fans. It was something with becoming a member of the crew of an imaginary craft, and for that privilege you had to pay something. But that amount was guaranteed to be not only reimbursed but multiplied ten-fold at least as soon as you would find other people willing to join the crew. It was then one of the first pyramidal systems in my country and soon that kind of stuffs became illegal. I remember I said to my mother: but what if you can’t sell to anyone else, you then become the pigeon, the last one to buy and gave your money to someone else? She said that was impossible, I remember she became emotional and greedy, and of course she lost her bet entirely. Fortunately, a marginal amount, not the savings of the family!

    1. Gary Post author

      Based on the fact that the miners have already broken their October lows and signaled a failed cycle, and silver is just pennies away from doing the same one has to expect gold will follow and break the October low. That will confirm this as a normal length cycle and not a short cycle that bottomed in Oct. If that happens then we will be dealing with an intermediate cycle that topped on week 8 in a left translated pattern. Most of the time left translated cycle move below the previous cycle low.

      So if gold breaks the October low we can probably expect it to also break the July low.

  4. JJHarmen

    Looks like we are in for a huge opening upside gap for the stock market with the S&P racing to new all time highs as well as a big recovery for the Nasdaq although no new highs should occur in the tech and semi sectors. The hot money sees greener pastures else where. The money is flowing out of tech and into primarily financials and that should go on for a few more days , at least. Those waiting for 1362 for the SOX are going to be very disappointed. Also, don’t expect much from the metals or oils sectors as they are into a smash down phase that could get quite nasty. Commodity players continue to be losers as they have been for years.
    Just my two cents worth folks.

  5. BeachandBiscuits

    Thanks Gary.

    I think you’re right…bubbles must have a narrative that people can grab hold of to rationalize why the bubble can only go higher.

    What do you see as the/ a likely narrative to drive the Nasdaq/ SM bubble you foresee? It doesn’t seem like one has coalesced in peoples’ minds yet.

    1. Gary Post author

      Right now the driver is an improving economy, improving earnings and possible major tax cuts.

      I don’t know what the narrative will become if we turn parabolic.

  6. Goild

    Added 1K JNUG shares at $14.33 for a total of 2K shares.

    I will assume that we are at the bottom of the lower trend line and that it will not be penetrated yet.

    We shall see.

  7. Gary Post author

    Gartman and Gross are looking more and more foolish everyday with their recent top calls.

    Like I said. Someone will try to call a top every other day.

    We need to reach the same kind of rabid sentiment as bitcoin before one starts trying to call tops.

        1. Gary Post author

          I don’t have a problem with people adapting if the market doesn’t do what you expect. That’s trading.

          What I do have a problem with is the kind of BS that AVI uses multiple scenarios and then claims to have traded the market perfectly no matter what happens.

          Make a real time call and choose one of the scenario’s. If it doesn’t pan out then take the loss and move on. Almost no newsletters will ever tie themselves down to an actual call. If they do then they have to admit when they have a losing trade.

          And that my friends is NOT how you sell subscriptions by admitting you lost money.

          Rather than make actual trades Avi is more interested in pointing out other peoples losing trades while claiming victory when any of his multiple counts pan out.

          Cover all bases and point the finger at the competition who actually have the balls to stick their neck out.

  8. Stevephen

    Excellent video! Seems likely this Crypto phenomenon might replace the Tulip bubble at the top of the list before it’s done. Scary. Feels very familiar to owning almost any new IPO and technology like Juniper back in ’99, for instance. The JNPR IPO was around $100/sh then off to splitting a couple times in a short period all the way up to $1200/sh. I asked my boss on advice from a friend who had made a ton, why he didn’t just sell the $100,000 what started with. He gloated, “Oh, that’s just my first million”!

    Who didn’t think that it was surely different in those days?

    1. espresso

      Stevephen, I agree that this could blitz past the tulip mania. One reason is the Feds have been serial bubble blowers for a couple of decades now, and with the stock market powering to new highs, I think there likely is room for new people to switch to the bubble. And I am mindful that the NAZ bubble in ’00 reached a P/E peak that was about 100% higher than the ’29 bubble, just a staggering rise.

      I recently was forwarded a ‘puff piece’ about block-chain, nearly 40 minutes. I had to start skipping through. Basically, the world is gonna be a glorious place because of the miracle of block-chain. Yet there was nothing of any substance anywhere in site. And the promos for the newly printed “money” are just aimed directly for the bubbleonians, the ones who are panicking that they have not missed out “too much.”

      1. Nada

        As long as that line holds (chart posted above) then I think gold is OK. The problem is, all the time it has wasted in consolidation. This correction, has chopped almost everyone up long or short. Part of me, wish the damn cycle would fail and we get a ICL at FOMC.

        I don’t think its gong to play out that way though. I think the ICL is not until late Jan. USDJPY had a failed cycle and I suspect its completing its H&S pattern and will then drop to hell – where it rightly belongs.

  9. Don

    The dollar and gold are going in the same direction, down. Which one is ‘wrong’? I am going to guess that gold will snap back up and the dollar will continue down.

  10. MiSmart

    Gary,

    Today and last 2 days, Dow Jones Transports jumps 6%.
    What do you think about this regarding your cycle prediction for SM?
    Is this behavior telling something else?

    1. Gary Post author

      Both the transports and industrials closed at new highs confirming another Dow Theory bull signal.

      It really has nothing to do with cycles though.

      And cycles may become erratic and useless if we transition into a parabolic phase.

      One doesn’t need to be leveraged all the time, but I think one should at least have a core position at all times in case the market does start to go parabolic.

  11. Gary Post author

    Funny how the trolls just seem to evaporate when the markets are behaving as expected.

    Like I said these people have one purpose: to raise havoc whenever I miss a call. It doesn’t matter how many correct calls I have before that or how much money we’ve made. All they care about is trying to catch me in a bad call and then blowing it all out of proportion.

    Everyone misses a call from time to time. You just have to get back to work and make back the losses (in real time of course). Not these fantasy trades that always seem to appear after the fact. 🙂

    1. JJHarmen

      Gary, why is someone that calls you out on bad calls called troll and others not? Pedestrian shot his stupid mouth off criticizing many of the calls you (and others) have made and you yet you seemed okay with engaging in lengthy conversations with Ped whereas someone who actually had a clue, like Christian, gets his ass kicked off. I saw Pedestrian as a real troll and Christian as a contributor.
      I don’t get why you are so selective about who you are willing to tolerate.

      1. Gary Post author

        I reinstated Christian weeks ago. It’s purely up to him if he wants to return.

        I got tired of the cursing so he got a one week suspension.

        Ped also has been reinstated and can come back whenever he likes.

        All I ask is that people be civil.

        I think we can all agree the blog has become a much more friendly place over the last month.

      2. Nada

        Don’t worry JJ. Christian is still with us, he is just in the shadows playing hard to get and waiting for a failed cycle. When it occurs, he will return. Miss the little guy, so I hope he hurry backs. Sweet kid that Christian.

    2. ras

      Absolutely. Everyone stumbles at times in a trade. There is no perfection in this business. What is important is to do proper risk management to limit the loss. One can always recover from a minor loss.

  12. primetime

    There is so much garbage to be found in all these markets. The continual noise is only a distraction, one must keep a long term viewpoint, looking at the whole beach and not simply a couple grains of sand.

  13. Gary Post author

    The S&P was 3 points away from the channel trend line at today’s high.

    A tag of that level would be an opportune spot to drop back down into a half cycle low. So don’t freak out if the market corrects next week. If so it will set up a buying opportunity as we head into the FOMC meeting.

    If it doesn’t correct and just blows right through that level … then the parabolic phase may be starting.

    1. carlvan

      Gary, I believe you are right again: S&P, ES and SPY now touched their upper channel line, and NQ is still lagging 40 points below its high – let’see where it goes…

    1. Gary Post author

      And the Dow has blown right through two 1000 point barriers.

      The bull trend line has now been tagged in the SPX.

      If we keep going higher tomorrow and blow through it then the odds increase that the parabolic phase has begun.

  14. vin

    Nice day indeed. LABU is up for a change. Though indl is down a bit.

    More interestingly golds are, specially the juniors, seem to be performing well though gold if down. Sign of things to come?

  15. Don

    The stock market is getting crazy and the FED is still talking silly quarter point rate increases because the economy is considered too fragile for much in the way of interest rate hikes. . How can that contradiction make sense ?

    1. Gary Post author

      It’s why we are going to get another bubble. They are again way too far behind the curve. They should have been aggressively withdrawing liquidity 5 years ago. Now it’s too late to turn the Titanic around.

  16. Gary Post author

    We may have started the parabolic phase today.

    If the SPX doesn’t pull back from the trend line tomorrow then it’s probably game on and 10,000 here we come.

  17. isavage

    Sold SOXL that i bought on the bottom yesterday @ 140 & was entered in to the challenge. but change of plan don’t feel like its good to hold here.

    Buying the Crypto dip instead

  18. Sassybabe

    Does anyone want to hazard a guess as to where silver might bottom out? I want to buy more but think it is probably too early in the cycle. It was looking so good and then it went all to hell. Guess it’s not ready to fly just yet.

    1. JJHarmen

      No idea Sassy. GDX has been a big disappointment for me but I will buy more if I see anything that looks like a selling climax. Like silver, it will one day take off and not look back but the waiting game is brutal.

  19. MagnuM

    I can’t believe that Google Finance axed the portfolio-tracking core feature of their service. What were they thinking!? Way to drive absolutely everybody away and get $0.00 in advertising revenue going forward!

    Does anybody know of any good alternative that also have Canadian securities?

  20. MagnuM

    I have to congratulate you on some great calls in the USA markets Gary! Way to go!

    While I still think you’re wrong about the cryptocurrency markets, only time will prove one of us correct. I think we’re both on the same side right now that a large correction is needed to reset sentiment. I would like to see a good -40% or -50% before I’m interested again.

    I had done my first buys in mid-September when you first did your “bubble popping” post. That’s when BTC corrected from $5,000 to just under $3,000. That’s when I first got on board. I exited around $8,200, and I’m feeling a bit cheated about the bit I missed out on, but I’m not going to buy again unless there is a large drop.

    Every single large flush has been a buying opportunity until now. That will hold true until one day it doesn’t. You are right about that, but nobody knows when the “wasn’t a buying op” drop will occur.

  21. Goild

    Well,

    This is the way business is…

    Got into the falling JNUG to lose about $8K.
    Fortunately there was a bounce and mostly recover.
    I forgot when was the last time I had a red day, but today is going to be red.
    with about -$1500.
    Tomorrow will be another day.
    Good trading to all.

    1. vin

      Goild, I don’t believe it. You mean you actually lost money day trading? If I remember correctly this has never happened before.

      But, then money is not everything. You have a good day even when you a little less money.

      1. vin

        gg is my largest position. It has been a real dog. At this point it does look good. If I didn’t have so much I would have been interested. I also like fnv, paas and wpm, in that order.

  22. ted

    Gary doesn’t understand the crypto’s. I think it’s funny he posted this chart a few weeks on JNUG going all parabolic in the next 5 years. Not going to happen. Gold is over. The future is in the crypto’s, and the young get it. The stocks doing well these days: marijuana! The young rule and are top of the future. The old folk want to stick their money is gold and energy. How sleepy. The young rule, and will soon rule the world!

    1. Nada

      Well I dunno about being on top of their future. All time numbers living with their parents, still on their parents insurance until they are 26 (what a freaking joke), beg for someone else to pay for their education and their incomes are at record lows. Yeah, I am sure sticking what little money they have in cryptos will work out just fine.

    2. ocram

      As Bitcoin bubble will challenge the Tulip bubble at the same time today’s “young” people will challenge the title as “the dumbest generation in history”.
      They will be the first generation that will earn less than their parents.
      They are the fattest and ugliest generation ever.
      They have so far the lowest iq ever in an “educated” population ,this is why they don’t use brain and use technology in order to do everything.
      The music most (not all) they usually listen is not music at all since is a prefabricated noise composed by samples and computer software.
      They are the weakest generation ever, since they are used to be protected by everything.
      They live mostly in a virtual plastic world that don’t exist and when they will wake up they will realize that they will be remembered as the LOSER generation.
      they are just a generation of passage that will leave nothing behind them.
      We should just hope that the NEXT generation will be much more intelligent and REAL than this.

        1. vin

          Quite possible. Or, may they are fed up feeding the smart ones who think it is a great idea investing in NOTHING while they are provided free food and shelter. I for one sympathize with them. Amen!

        1. vin

          Not surprised. Reading skills are no where to be found. After all it is computer age. No one has to read and write now because of computers which were invented by people who are now old and not respected because they can write. Amen!

  23. Bluebellkid

    Let me see if I have this straight Ted – gold which is mentioned early on in the Bible (Chapter 2 I believe) is no longer the store of wealth it has always been?? It has been replaced with a digital cryptocurrency – you younger generation folks are easy!!

      1. victor

        that’s right, I’m going to buy those archaic sh…t as much as I can soon and we will see in a year who’s done better…
        Sold gold/silver shorts today, bought another portion of stinky/smoky sh…t cannabis…

      2. espresso

        ted, being ignorant doesn’t prevent reality from existing. Gold is approximately the same value as any time in the past 1000 years, give or take (and give or take a couple of years to smooth out wiggles).

        Live and learn, if you are able.

        1. vin

          I would say more like 3000 years even if there is lack of exact documented financial history. There hasn’t been a known culture on the this earth where gold was not a medium of exchange be it Greek, Chinese, Indian, Persian, Mesopotamia, Egyptian, or any other.

  24. victor

    let put it this way: average price for a new car is about 40k or 30 ounces of gold (depends of calculation) , so would you prefer to sell your car for 30ounces of gold or 4 Bitcoins?

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