Gold completed an undercut on Friday. Everyone is bearish, as they should be at a major bottom. When everyone is thinking the same thing, no one is thinking.

On Wednesday’s reversal almost 2 billion in shares of the major mining indexes traded hands and that doesn’t include individual mining stocks. Remember me explaining how the banks manufacture these panics to create liquidity allowing them to enter big positions without moving price against themselves?

Despite gold making a lower low the mining indexes did not. A divergence.

I think there’s a strong possibility the bottom occurred on Friday, and if not, it is going to occur sometime this week.

One of the problems many novice, or even experienced traders have is a lack of discipline. By that I mean when a system experiences a dull period most traders assume the system doesn’t work and move on in search of the current fad of the moment. The problem with this approach of course is the reason something is fashionable is because it’s been working long enough for traders to take notice. That usually means the system is about to break down. All systems break down from time to time. It doesn’t mean the system is a losing system, it just means it’s going through a stale period.

If over time the system has proven to be a profitable system then one should stick with it as the stagnate period will come to an end, and profits are just around the corner.

I’ve seen this play out over and over at ICL’s. In our modern markets it’s not as easy to spot exact bottoms as it used to be. Often it takes several attempts. Does that mean that cycles & sentiment no longer work as trading tools? Of course not. One just has to work a little harder nowadays, but neither one of these tools have become obsolete.

Invariably what happens at every ICL is if it takes more than one attempt to catch the bottom the impatient and undisciplined traders jump ship and go searching for something that “works”. Of course what they end up doing is jumping on board the latest fad right as it’s about to stop working (remember bitcoin?), and then they miss the profits when the stale period comes to an end and the proven system starts working.

Over the years I can’t count how many subscribers gave up too soon and then missed the gains once we caught the bottom of the ICL. Over the last 2½ years  the metal portfolio has gone from $100,000 to $508,000. How many people missed those gains though because they lacked the discipline to stick with the system through the stale periods and hold on for the gains? A lot!

Find a system you can work with. Back test it to see if it produces gains over time. If it does then stick with it, and don’t give up just because it occasionally produces losses. All systems do.

For myself I prefer a combination of cycles, sentiment and a dash of technicals. Does it produce every month? No of course not. We have losing months just like everyone does. Does it produce consistent gains over time? Absolutely, and as far as I can tell it does better than any other system I’ve ever seen, because it’s a contrarian system (which is why I use it 🙂 )

Based on the long term cycle counts this is what I think lies ahead over the next two years. A big party followed by a big hang over.

Most people are completely incapable of seeing what’s happening. They never take a step back and look at the big picture. All they know is that gold has been going down for 2 months.

But during that two months look what the miners have done. This is unprecedented. Miners always get obliterated during yearly cycle declines. But not this time. The YCL has barely even made a dent in the mining stocks. This is set up for an amazing rally once the advancing phase of the intermediate cycle begins. But most will miss it because they only focused on the short term and never bothered to check the big picture.

If the S&P can get above the March high it will right translate the intermediate cycle and open the door for a test of the all time highs by the August 1st FOMC meeting.

I believe it will succeed in breaking through this resistance.

We’re still waiting to see if the banks can finish the undercut. It’s starting to look a little iffy today though. They may fail and if they do we’ll be off to the races soon. I’m starting to hear talk of $1000 gold. That has been a universal sign of bottom in the past. Once traders become irrational enough to entertain visions of a completely unrealistic target that means we’re just about done with the correction.

Still not one flea has had the balls to enter the challenge. The only thing they can do well is criticize others. In the meantime the SMT metal portfolio is up over 7% and leading the challenge.

We’re still waiting to see if the banks can manufacture an undercut. My gut says they will fail but I’m playing it cautious all the same. We made a nice profit on the last trade and I’ll wait for a sign that they’ve given up on trying to force a lower low before we jump back in the pool.  If they do succeed then we’ll try to spot the bottom and buy instead of panic like most traders.

The reversal in miners yesterday set off warning bells so we took profits on our long positions. Why? Because as I’ve said before the banks control this sector. One of the strategies they use before a big move begins is to manufacture an undercut. It panics longs and creates a stop run so the banks can scoop up multi million dollar positions without running the price up.

And based on the Bollinger band squeeze I think we have a big move coming. Maybe one to rival the baby bull rally. The banks are going to make sure they are fully loaded before that begins. They employed the same tactics right before the baby bull. They manufactured an undercut in the mining indexes that created a selling panic as scared longs started looking for another leg down. Instead the banks scooped up their shares and ounces at the very bottom and then released the sector into the baby bull rally.

These are the kind of things one has to be prepared for in this sector. The SMT metal portfolio just racked up a very nice 7% gain in two weeks and is sitting at all new highs ($508,000) and now we can wait and see if an undercut is coming. If it is we will be buying at the bottom instead of panicking and selling like everyone else.

Gold should close above the 10 day moving average today. That is the next confirmation that at least a daily cycle low has been completed. That being said there is hardly any doubt at this point that gold has also completed its summer ICL and will now start the 8-12 week rally I’ve been predicting.

The miners should burst out of the Bollinger band constriction this week and start a major rally over the next 2-3 months.

The emotional traders missed another contrarian buying opportunity because they are incapable of thinking logically. After today the market is going to be overbought and their emotions will again prevent them from buying into overbought conditions for fear of an instant drawdown. They can’t see the big picture, that a multi week rally is starting and any drawdown will be temporary.

Still not a word from the insects. They’ve gone into hiding like they always do when they screw up another ICL.

Still not one newsletter writer or troll has had the balls to enter the challenge. We all know how this works. They are busy hedging their bets with possible alternate counts or wishy washy maybe this is the bottom or maybe it isn’t rhetoric. None of these guys will ever just make a straight up call and put their ass on the line. Weeks later if it does turn out to be the bottom we will hear talk of how they called the exact bottom. They will pick the count that was correct and conveniently forget all about their hedging rhetoric when we were still at risk of turning back down.

This is why I started the challenge. Everyone has to make real time calls. No one gets to claim perfect trades after the fact anymore. If you don’t call it in real time then it never happened and you’re just another bullshit Monday morning quarterback.