Thursday, July 15, 2010

BOREDOM PARADOX

Now that gold is holding consistently above $1000 it's going to become tougher and tougher for gold to shed riders, which is mandatory if the bull is to continue higher. That means the bull is going to have to pull out every trick in the book in order to get investors to jump ship. The greatest trick the gold bull pulls isn’t the D-wave decline (although that is a doozie). No, the greatest trick the bull pulls on investors is the boredom paradox. Basically this rule says that before any big leg up gold will wander around long enough that everyone becomes so bored they finally give up and jump ship. The paradox is that usually during this period gold is trending higher.

Let me show you some examples of the boredom paradox in action.



You can see these things often occur during the summer months. Ultimately they are consolidation patterns after large legs up. We have been in a tedious BP since last December. And even though gold has shown enough strength to actually break out to new highs (the paradox) it is still shedding riders at a vicious clip. I know I’ve seen it in progress. During the run up in November last year riders hopped on the bull in droves. My guess is that probably less than 10% of them have had the stamina to hang on, even though gold has made new highs.

Once gold has shaken off virtually every impatient rider then the next leg up will begin. Trust me none of those lost riders will be able to pull the trigger when it happens and the bull, when he starts charging, will instantly leave them behind. Invariably traders buy when the pain of missing the move just becomes too great to endure any longer and that of course ends up as either a short term top or an intermediate term top like we saw last November. Then of course the correction comes and all those Johnny come latelies end up getting knocked out for a loss. Like I said the bull is going to pull out every trick in the book.

Now I know many of you are just chomping at the bit, hardly able to wait for the big parabolic move that will top this monster C-wave. You want it and you want it now. Well I think I can tell you without a doubt you aren’t going to get it any time soon. Even if this is the bottom of the intermediate cycle I can virtually guarantee that gold is going to make you suffer through the rest of the summer. C-waves just don’t top out in the middle of summer. They top either in late fall or early spring. (They also top at the end of intermediate cycles and this one is just beginning.) What we can probably expect is a frustrating grind higher. Each marginal new high followed by another move into a daily cycle bottom. In the mean time some other sector will get hot, maybe it will be tech or energy or whatever. But there will be extreme temptation to jump ship, of that I’m positive.

I’ve seen this for 9 years now. Investors get frustrated and lose their position and about that time gold and miners will start to rally. It won’t be noticeable at first. As a matter of fact by the time you notice it gold will be overbought. And you know you won’t be able to make yourself buy into overbought levels, so you will sit on the sidelines waiting for a correction. Some of you will manage to hang on until the correction comes, most won’t. They will panic in at a short term top. It never fails. Like I said, I’ve seen it for 9 years now.

Of those that managed to wait for the correction probably less than 50% will be able to buy because as we all know by now, this is a volatile sector. Corrections are scaring looking. It’s tough to buy into them. I have to laugh when I see these comments about how a trader is going to back up the truck if we get a correction. Did any of us see any backing up of the truck at the February low or during the recent correction? No of course not, because bottoms never look like bottoms. They always look like the trend will continue. So the vast majority of truck backers never load the truck.

The only way to avoid getting taken out by the Boredom Paradox is to just hang on. As long as you make up your mind that nothing the damn bull does is going to buck you off no matter what tricks he pulls then you will be there when the charge starts. Trust me on this one, all the pain and frustration will be worth it if you can last long enough to make it to that final parabolic move. I don’t doubt for a second that we will eventually see miners break out above that 519 resistance and when they finally do they are going to go a long long ways. I will be totally flabbergasted if we don’t see the HUI above 750, maybe even above 1000 during this final C-wave. But you are never going to get there if you let the BP knock you off the bull.

42 comments:

  1. Toby,

    Where do you see the S&P over the next few weeks. Do you think it is possible we only rally for only 3 weeks from the July low. Outside influences (astrology) point to a top around July 23-26 of this month...though other cycles project a longer rally.

    I think you are dead on with the gold article.

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  2. Even if this turns out to be a bear market rally those usually last about 6-8 weeks before rolling over. And I'm not convinced yet that the cyclical bull is dead.

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  3. It's actually really easy to be out of gold right now and get back in. You either wait until 1250 is broken or you stay patient and if complacent bulls start jumping ship (which I'm pretty sure they will once their recent profits start evaporating during the next gold correction), then you wait until some type of base has formed after the correction and get a good buy. Personally I'd wait for $1000 since no gold bull believes that can happen, so it probably will.

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  4. I doubt we will ever see $1000 again during this bull market. Gold already tested the $1000 breakout in February and the closest it could come was $1044.

    We haven't even put in the final move of this C-wave yet. There is virtually 0 chance of a test of $1000 until the next D-wave begins and that can't happen until this C-wave finishes.

    I expect the final push to take gold to $1500+ by late fall or early spring. At that point gold might retest this consolidation level around $1250 but the odds of a move all the way back to $1000 is very unlikely especially since the dollar will be heading down into a major 3 year cycle low during that period.

    Not to mention this correction is running out of time. It's now on week 23. Rarely does an intermediate cycle last longer than 25 weeks.

    On top of that public sentiment is almost back to the same levels as the February bottom. Gold is in jeopardy of running out of sellers.

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  5. I keep majority of my gold and trade the rest with my opponents for fun, keep me entertained in the boredom period.

    I also believe the other side actually count the number of longs all the time.

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  6. I disagree with your assessment on the dollar I think it is in a cyclical bull market that will take it to 100 or so. The dollar hasn't made a new low now in 2 years.

    On gold you could be right and we go to $1500 first before correcting but according to what I'm seeing on charts in other markets I give that a less likely chance of happening. I also don't think the $1044 test was a true test of $1000.

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  7. One thing I'm completely confident in is that you can't print several trillion dollars and not have something bad happen to the currency.

    That's just not the way the world works. The market is going to make Ben pay a terrible price for his insance monetary policy. I don't believe for a second the he is going to get off scot free. Sooner or later there the piper will be paid and it isn't going to happen by the dollar strengthening, of that I'm positive.

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  8. 216 on the spy -- Big money is still piling in

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  9. "One thing I'm completely confident in is that you can't print several trillion dollars and not have something bad happen to the currency."\

    can you print several trillion dollars of paper gold etfs (that does not exist) and not have something bad happen to gold?

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  10. I'm not really sure what you mean by gold ETF's that don't exist. As far as I know GLD, SLV, GDX, CEF, GDXJ all exist.

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  11. Why is your blog the same as Gary Savage's (smartmoneytracker.blogspot.com)? Your stuff appears on Minyanville, but not Gary's? What gives? Just curious.

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  12. Maybe they're both frauds and have a third person (ghost writer) that writes the content?

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  13. The biggest problem right now is still debt, not wheelbarrows full of money. Inflationists in my opinion are still too early since there really hasn't been anywhere near the type of money printing yet to cause a hyperinflation, not even close. Sure the Fed piled a bunch of toxic debt on their balance sheet, but all that did is allow a few financial institutions to stay alive while they repair balance sheets. The average American has really received no stimulus unless they got the cash for clunker or the first time home buyer credit, which still was peanuts compared to how much debt they could be saddled with. Couple that with the rise in unemployment and the amount of debt still owed on mortgages and the debt problem really hasn't gone away yet. As long as we have a debt problem we have a deflation problem while assets get sold off to repair debt. That's why the dollar will rally against other currencies for the next couple years while more debt is repudiated through default and asset sales.

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  14. I'll make you a bet the dollar drops below 80 before it goes above 90.

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  15. Since the dollar is so close to 80 now I could see that happening, although I'd be surprised if it stays down there. I would bet on the dollar breaking 90 or 100 before it breaks 74.

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  16. Since this 3 year cycle is extremely left translated that puts the odds heavily in favor of the next 3 year cycle low moving below the prior one at 71. So I'll take that bet. Below 74 before it goes above 100.

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  17. Since 90 is about the same length away than 74 I think that is a more reasonable bet, but the monthly chart pattern of the dollar suggests 100 could be in the cards, that is probably where I will look for a topping pattern to form once it breaks 90.

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  18. Take a look at the Yen, the other deflation/bear market currency. What a beautiful consolidation pattern and now it's looking like a break to new highs is coming soon. Another fly in the ointment for the equity market.

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  19. I've always found it is virtually impossible to predict short term moves by trying to project the past into the future (technical analysis).

    The only charts I trust are of the secular type. The dollar is in a secular bear market and has been since 2001. Gold has been in a secular bull market since 2001.

    Trying to make a prediction about what's is going to happen tomorrow or next month based on what happened yesterday or last week just isn't a very reliable strategy. Probably why history is pretty clear that strategies based purely on technical analysis usually underperform.

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  20. I'm not trying to predict daily moves, I trade multi-month to multi-year trends. I was long from late 2008 through early 2010, and I made fantastic returns. Now I think we are in another secular downleg where we will retest the March 2009 lows at a minimum, so I'm not as interested in the stock market at this time. Gold I believe won't perform extremely well during this period either. Could I be wrong, sure, but I have my parameters to know where I'm wrong, so I live to fight another day. I'm pretty sure this isn't rocket science or some mystic art or something, it's just an opinion with some parameters determining whether you're right or wrong.

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  21. Toby,

    The S&P is down 18.66, do you think that maybe the market is heading into an early half cycle correction?

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  22. It's always possible but the odds are greater that this will be a temporary pullback followed by a bit more strength before a more substantial correction a little later in the cycle.

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  23. Toby,

    I've been riding this bull for many years now, and I think I've mastered the art of holding my position through any correction. However, those of us in this position are probably going to be the best candidates to ride the price all the way down following a future blow off top.

    Yes, I have an exit plan, but I have many sleepless nights wondering if I will have the courage to sell when the time comes.

    This is a big question, probably worthy of a new post on your part rather than a quick reply here, but what are your views concerning an exit stategy plan? I don't expect to need one for several years yet, but it would be reassuring to have someone else's idea how to get out once the gold bull eventually approaches it's end.

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  24. Getting out will be easy although I can guarantee you will be early so you are going to have to resist the temptation to get back in.

    Just wait for the Dow:gold ratio to hit 1:1. When you start to see everyone buying gold we have about 1 to 1 1/2 years before the top. And we will see a monster parabolic move as the bull tops.

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  25. What's happening to your dead kitten
    bull bounce??

    Say goodbye Chico.

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  26. Even if this turns out to be a bear market rally I can't think of any that rolled over in less than three weeks. Ods are strong this is just another bear trap to get the shorts all exited that they will recover their losses then the market will continue higher.

    Bull markets just don't roll over easily. They are usually a multi month process.

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  27. DOW -230
    your credibility 0

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  28. Anon,
    You seem to have a hard time understanding plain english so let me say it again.

    If the market drops down and breaks below the recent low (I'm assuming the recent low is marking a secondary low point) then we will have a Dow theory sell signal and at that point I will say yes the secular bear trend is back.

    Until that happens I'm not prepared to call the end of the bull just yet.

    Is that really so hard to understand?

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  29. toby was that you lifting the offer post the open outcry session?

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  30. Well look Toby what we saw today had nothing to do with your predicted "half daily cycle" or whatever mumbo jumbo you talk. What you say is not even close.

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  31. You're right the half cycle low isn't due till about day 15, so the odds are this is too early, (although the half cycle low came on day 13 out of the February intermediate low so it is possible it has already begun).

    No this was just a severe overbought condition that needed to take a breather.

    But let me point this out, we've already seen three vicious rallies. How many bears were able to time the exact bottom and top of each one of those? How many bears were able to spot the exact top in Apr. and ride the entire correction holding through all three of those rallies?

    The answer of course is none. Here's what has happened. Bears short as the market breaks to new lows then get taken out for a loss as a rally unloads on them.

    I suspect every bear is down considerably even during a strong correction.

    Now do you see waht I mean about bulls and bears alike losing money?

    And trust me if this does turn out to be the next leg down in the bear it's not going to get any easier.

    The powers that be will step up efforts to halt the bear creating even more volatility. The rallies will be even sharper. The moves below support even briefer.

    There will be bans on shorting. There will be another round of QE. There will be massaged economic data.

    One has to have a death wish to get tangled up in that. Face reality, if you are already losing money then why would you think it's all of a sudden going to change. Trust me it isn't.

    The market will just keep draining you until you have nothing left.

    I've been doing this a long time I know what really happens.

    If you want to avoid getting snared in this trap then you just get on board the secular gold bull and ride it to a big huge pot of gold.

    Now I won't lie to you, it's not going to be easy. There are going to be times where you have to weather draw downs. But if you do have the emotional control to hang on you will be hugely rewarded.

    If you choose to fight with a bear market the odds are probably about 9 to 1 (and I'm probably being generous) the bear is going to destroy your portfolio.

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  32. You're wrong from the start.

    This ain't a bull market.

    Adjust your faulty thinking accordingly.

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  33. Never once did I say this was a secular bull market. It has always been a cyclical bull, no one can deny that, not even you my perma-bear friend.

    I'm just not ready to call the next leg down in the secular bear until we get the final marker (a Dow Theory sell signal).

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  34. Russell gave us the Dow theory sell signal yonks ago.

    Wake up.

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  35. Toby I think we can go higher than 1000 on the HUI if gold hits $2300.00

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  36. Anon,
    Ugh Russell just said to buy the DIAMOND's. He realised he was too early. We had not put in a secondary low yet and besides that there is a potentially bullish Dow Theory non-confirmation. The transports did not break the Feb. lows.

    So sorry no Dow Theory sell signal yet. One will surely come because we are still in a secular bear market, but jumping the gun just runs the risk of getting caught in another leg up in the cyclical bull.

    Besides I would bet you've already lost money on the short side after three vicious counter trend rallies. Do you seriously still want the market to continue taking money away from you?

    You need to do your due diligence a little better next time before you start calling sell signals that just aren't there, and putting words in Russell's mouth that just aren't true.

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  37. You idiot.

    He buy diamonds(the stones)
    not the market.

    You're losing it buddy.

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  38. "My suggestion -- bold subscribers might take a position in the DIAs with stop losses."

    Direct quote from Richard Russell.

    Who looks like an idiot now?

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  39. Anon,
    You might want to stop and think next time before you stick your foot in your mouth again.

    Sheesh perma bears!!

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  40. "My suggestion -- bold subscribers might take a position in the DIAs with stop losses."

    that recco is 1.25 yeras old.

    nice try.

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  41. First you use Russell to back up your erroneous call for a Dow Theory sell signal and then after I show you that you are clearly wrong you say he's too old to be relevant?

    Personally I listen to Russell because he has more market expeience than almost anyone but that's beside the point.

    You were clearly wrong instead of digging a deeper hole for yourself just say "oops I was wrong"

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  42. I would like to exchange links with your site www.blogger.com
    Is this possible?

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