Saturday, July 3, 2010

LONG EVEN FOR A BEAR

The current decline has now lasted longer than even the longest leg down in the last bear market. The longer this goes the closer we get to a significant rally.





As you can see this decline is now 7 days older than any decline during the last bear market. I'll say again that bears hoping the head & shoulders pattern will drop straight down to 850 are probably going to get caught in an explosive intermediate degree rally.

It just doesn't make sense to continue pressing the short side at this point. It's safer to wait for a rally and then sell into it when it looks like it has topped.

We've already had two intra-day reversals. There is a good chance this correction (bull market) or leg down (bear market) has reached exhaustion. At the very least one should tighten up stops so they don't lose whatever gains they might have.

Although any little piece of good news or "surprise" Fed announcement pre-market could send the market rocketing right through stops trapping shorts in a losing position.

That is the risk one takes playing the short side. The powers that be are going to do everything they can to halt the bear and hurt the shorts. I think we can count on at least one more round of QE if not more. Bans on short selling are surely coming again and I wouldn't put it past the government to massage the economic data even more than they already do to paint a better than reality picture.

Before this is all over I even expect Ben to start dropping dollars from his helicopter although they will call it rebate checks again. Whatever it takes, Bernanke is not going to allow deflation.

He already halted the most severe deflationary spiral since the depression in less than a year and aborted a left translated 4 year cycle with his printing press. That has never been done before.

I don't know about you, but I have no desire to go up against that kind of firepower.

And if that isn't enough to convince you the NY times had a feature article by Chicken Little, the sky is falling, end of the world himself Bob Precther.

If sentiment has gotten so bad that the NY Times is giving interviews to Bob Prechter is must be time to back up the truck on the long side.
(no thanks I'll just stick with my miners)

43 comments:

  1. Thanks for your analysis. Level headed and objective. I too am hesitant of shorting against Bernanke and his big guns. I am less concerned about the duration of this correction/leg down. Do you suppose the runaway move up we just saw was worried about pausing or did it just keep going? The market didnt wait for people to get in at lower levels and this one might not wait for people to get out or short at higher ones. Just my 2 cents...

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  2. PS I meant "runaway move -- UP", before the recent correction.

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  3. Toby, I have noticed more than once that many of the comments that are in agreement with you seem suspicious. It almost seems as if you're posting them yourself.

    At any rate, why are you so intensely vocal against people going short right now? (this is the second article you wrote to that effect). You sound really anxious. That seems suspicious too. I mean, your chart predictions over the past few months have not been correct even once - not once.

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  4. And furthermore to the above... of course we'll get QE part 2 and an UP market, but first we need political ammunition to do another round of stimulus (i.e. a big scary drop). Why do you think Paul Krugman, the shill, is talking about a big depression right now? Everything a guy like that says needs to be looked at in the context of what is he trying to pull off.

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  5. "Toby, I have noticed more than once that many of the comments that are in agreement with you seem suspicious. It almost seems as if you're posting them yourself."

    Funny, you say that...I got the same feeling.

    This Toby is starting to strike me as a financial charlatan.

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  6. Toby is suffering from the broken clock right twice-a-day syndrome.

    You're starting to lose major cred dude.

    I told you before stop blagging just to fill space.

    You act like an overtrader.

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  7. I think we all know it's impossible to get the timing of the stock market exactly right 100% of the time. I'm not claiming to do that by any means. I've been doing this long enough to know it isn't possible.

    But I do believe I'm right and we are going to see a major bottom in the next week, maybe two although I doubt the market can continue down that long. At 48 days we are already reaching the limits of how long human emotions can remain negative.

    Now if we do get a large rally soon, even if it is a counter trend rally in an ongoing bear market I'm going to expect an apology and admission that I was right. If we just keep going down straight to 850 like the bears believe the H&S pattern predicts I will wholeheartedly admit I was wrong.

    I had this conversation just the other day with a dollar bull and now the dollar is collsping just like I said it would eventually do. Which by the way will act to turn the market. Notice how we've had two big reversal days at the same time the dollarr has been coming apart.

    Anyway do we have a deal? 850 I admit I was totally wrong. Counter trend rally in the next week, two at the most and you apologize and admit I was right. :)

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  8. Let's be clear about how wrong I've been too. I've been expecting something sililar to the `07 market to unfold. So lets count the initial move down to 1040 as where I expected the 2b reversal to mark the market bottom.

    So far I've been wrong by a whopping 18 points (1.7%) and only the last three days have the markets dropped below what I thought would be a bottom.

    Now tell us how long did you hold shorts out of the Feb. bottom? I know you did becuase you were on here spouting the same stuff as now so don't try to tell us you covered at the bottom, no one is going to believe you. Did you lose more than 1.7%?

    Don't forget now how many times you tried to pick a top in March & April. Did you lose more than 1.7%?

    How about last fall. Don't think I don't know it was you that was shorting gold spraying about a triple top. I rode that all the way to just slightly under $1200.

    And I'm guessing you have also been shorting gold lately trying to pick a top. How many times did gold run over you? More than 1.7%? Even if you managed to catch the exact top of gold (you didn't) you would be up a whopping 4.2% right now.

    Tell us did you short the day after the flash crash and then get knocked out by the relief rally? How about at the June bottom did the 8.5% rally in 8 days knock you out for a loss?

    I've been doing this a long time I can smell BS pretty quickly. And I can guarantee that your trading account can't begin to back-up your mouth.

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  9. I find it odd that people would base an investment thesis around Ben Bernanke printing a bunch of money. That seems lame and foolish to me. Any Japanese stock investor who has done that over the last 20 years has just continued to lose money, so there's no reason it will magically work this time around either. And the thesis that Ben Bernanke stopped the last downturn is completely ridiculous to me. I think just plain low stock prices stopped the last downturn, and that is what is going to happen again.

    I'm a bear and I've only been shorting this market since May, so your idea that every bear on this board has only lost money because they shorted too early is wrong, and also I really don't think any bears truly expect 850 right away either. Of course we could have a bear market rally here, I'm sure earnings estimates have been lowered enough again to make some of the reports look good as is usually the case on Wall Street.

    As for the dollar, the dollar isn't in any trouble until it breaks the 80-82 area, and then around 76-77 or so it would break the uptrend. Until then I'm not going to feel bad about being long the dollar.

    As far as gold goes as I posted earlier how can you be overly bullish on that market when two of the best stocks in the sector SLW, and ANV, have gone parabolic and are showing very bearish technical formations. Better just to wait on those stocks and gold and silver and get better prices. Gold bulls are so complacent right now it's ridiculous they haven't had to worry about falling prices in virtually 2 years.

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  10. Hey I am not a T.C. shill and I can recognize BS vs experience. You guys are being a bit tough on him I think. And for the last comment, I think it is VERY important to recognize the power of the Fed at a trading AND investment level. As for Japan, you realize there were multiple 60% rallies in the midst of the secular bear...

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  11. Also, nobody's charts are perfect 100%. Its about the type analysis -- is it disciplined, consistent, intelligent. Does it make you think and consider, or does it say here is a top -- sell, here is a bottom -- buy. If you are looking for the latter, I can forward you a bunch of "investment letters" spam and junk mail I receive...

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  12. Wow there are so many wrong conclusions I don't know where to start. How about SLW and ANV. SLW just barely made a new high. How is that parabolic? ANV at the top a couple of weeks ago was 53% above the 200 DMA. How is that parabolic?

    Like the other poster said Japan had multiple huge bear market rallies during their secular bear and remember they funded their bailout programs with internal saving not the printing press. It wasn't until just recently that Japan has had to resort to printing. Anyone who bought close to the bottoms and sold close to tops made a ton of money the last twenty years in Japan.

    Ben and Greenspan have been printing since 2000. I've made a lot of money investing with that fundamental thesis firmly in mind. I don't know why anyone would expect them to quit now. How in the world would we finance our debt if the Fed quits printing?

    And I don't buy the whole I've only been shorting since the exact top in May baloney either. You were here February spouting the same crap.

    So should I take this to mean you won't be man enough to apologize if the market enters a rally, counter trend or not, in the next 2 weeks? Will you just go back into hiding until the next intermediate cycle low comes arround 20 or so weeks from now?

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  13. admit I was wrong if we rally?? Nothing goes straight down. Of course we'll bounce for a couple days, then down again, then bounce, etc. until we hit bottom as measured in weeks and months, not days. Anyways I don't have a crystal ball either but my guess is as good as anyone else's.

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  14. Admit and apologize.

    I'm not talking a couple day rally. I'm talking either a full fledged bear market rally like you see in the chart of 07-09 or another leg up in the cyclical bull.

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  15. PS I hope you weren't referring to me in your 5:46 AM post Toby because if you were, you are an absolute liar. I wasn't on here spouting any such thing back in February, or picking tops etc. By the way, I think your "brink of an assest explosion" prediction was off by quite a large amount, not just 1.7% (in fact commodities are looking down these days).

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  16. On the Brink was published March 9th. From that point to the recent top in May the market rose 7%, gold 13%, silver 14%, energy 6%, gasoline 7.5%, miners 19%, large cap tech 8.7%, small cap 11%.

    Pretty respectable moves despite the pressure of a rising dollar (which I was wrong about BTW. I thought the dollar would turn tail much earlier and my basisi for "Brink" was predicated on a failling dollar scenario)

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  17. This Toby is an imposter. He just copied everything from Gary Savage of the smartmoney.bloodspot.com.

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  18. Toby is Gary you dope. How many times does he have to tell you?

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  19. Yes we are one and the same. The GS blog is a partnership between myself and my publisist & editor.

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  20. So Toby Connor == Gary Savage?!
    How does it happen?!

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  21. Toby,

    Look at the weekly chart of SLW and ANV, and tell me those aren't overly extended, borderline parabolic moves over a long period of time. I'm not the same anonymous poster you must be referring to, I've been short and I'm still not heavily short yet, over the last few months only. Before that I rode the rally from the 2009 low to the recent highs pretty darn well. I bought a bunch of SLW in the 2's and turned a great profit off that stock in fact.

    The fact is this is a BEAR market. Expecting rallies all the time is going to be highly dangerous to your financial health during certain periods. Of course short term we could be setting up for a rally. But honestly, I think it is going to be peanuts because the market looks terrible right now, look how many sector leading stocks have charts that are breaking down or broken. There is no way that folks are going to led their gold and gold miner profits evaporate along with the rest of the market if things continue to roll over. That means even the gold sector is going to get punished in the near future. You talk confidently that you are an old turkey and can handle the drawdown, but most people are going to get scared again after we see another 25-40% decline and they are going to bail just like they did last time.

    So for right now I'm an old turkey on the bear side because that is the only way you are going to make money until the charts start firming up and we see some real patterns we can make long term runs off of. I'll add more gold and silver at better prices with the ammo I will have in reserve.

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  22. Toby,

    You said "Anyone who bought close to the bottoms and sold close to tops made a ton of money the last twenty years in Japan." So you are contradicting yourself because you keep saying market timing is pointless, yet now you say that anyone who could market time Japan did really well. The fact is market timing is probably the only thing you can do to try and be successful in a bear market, either that or just stay out of the market and watch everyone else suffer.

    Also you say ANV is 53% over it's 200 SMA. Doesn't that sound like a stock that could suffer a pretty big pullback?

    Finally when would you admit that you are wrong on the dollar? Would a breakout over 88 do it or does it have to go to 100?

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  23. Toby was never really "wrong" - just 90 degrees out of phase.

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  24. Justin,
    Neither one of those is parabolic by any sense of the word. They are just in strong up trends.

    For some reason you seem to think that a strong up trend for a year and a half means a stock has gone parabolic and is ready to crash.

    Pull up a long term chart of HOC or even the XLE. HOC has a very similar pattern to ANV from 03 to 05. With roughly the same point and percentage gain. Did one do themselves any favors by exiting in 05? No of course not the stock almost quadrupled from there.

    Now can ANV or SLW drop back down to the 200 DMA? Sure they can. HOC pulled back to the mean several times during that incredible run but it by no means meant the party was over.

    Now the energy bull is over and it's the precious metals turn to take over the reins. There's no way I'm going to do something foolish and hop off the boat in 05 when there are still huge gains ahead.

    When I think the gold bull is finished and I see the Fed and government do something to alter the fundamental driver of this bull market or I see the signs of a true bubble then and only then will I say goodbye to the bull.

    Until that happens I will continue to hold positions until I think each C-wave has topped and I will continue to buy back in when I think a D-wave has bottomed.

    At the moment I see no evidence what-so-ever that the current C-wave has topped. On the contrary I see gold, silver & miners completely decoupling from the stock market the same as they did in the 30's.

    So why in the world would I want to fight with Ben and his printing press & the government for little profits in a bear market that I'm not even convinced yet is a bear market when there is a perfectly good bull market alive and well in the precious metals sector? Not to mention I think it will be the greatest bull market any of us will ever see in our lifetime.

    That just makes absolutely no sense to me. Trade in the potential for 100's of percentage points for a meager 40-50% if I'm real lucky and catch most of a bear market. (which BTW I don't think for a second I would be good enough to do.) I know from my experience in the last one any trader that caught half of that 58% drop did exceptionally well. And that was the second greatest bear market in history. Like I said little profits at great risk.

    Justin,
    I don't think you trully understand the mathmatics involved in a bear market as opposed to a bull market. It's no coincidence there are almost no multi-billion dollar bears. And there are probably very few perma-bear millionaires.

    It's just insane to play the short side if there is a bull market somewhere. I'm pretty confident I'm not insane so I will keep riding the bull.

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  25. Oh and to answer your question about the dollar there is a lot more to it than just a chart. The dollar is supposed to be a store of value. The question isn't whether it is above 88 or 100. The true question is will it hold it's value. Will it retain it's purchasing power.

    Since the dollar is measured against other paper currencies a simple chart tells you nothing about how well it has retained it's purchasing power.

    So let's just take a few examples and see if the dollar trully is in a bull market or whether we are just witnessing the ruler it is measured with shrinking.

    At the prior top when the dollar was trading at close to 90 35 of those dollars would buy a barrel of oil.

    At the recent top it took over 70 of those dollars to buy a barrel of oil. When priced in something real like oil the dollar hasn't rallied at all it in fact has lost more than half it's purchasing power.

    No how about gold (the truest measure of purchasing power) at the top in March it took 680 dollars to buy an oz. of gold. Now with the dollar trading at roughly the same level it takes 1200. Again the dollar has fallen almost 50%.

    Gasoline. March 09 .80 cents. Recent high $2.40. Dollar devalued by more 50%.

    Copper $125. $360

    The list goes on and on. When measured in pure purchasing power the dollar is not in a bull market. On the contrary it is in one of the most devastating bear markets in history.

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  26. 1. The slope on the SLW and ANV weekly charts looks similar to the slope of other parabolic charts I can pull up in recent history, such as the chart of oil. I just don't see the need to run out and chase that kind of chart, maybe all it does is correct and go higher but I'm more in the camp that we've seen significant tops in both stocks.

    2. I agree that you can make more money in bull markets than bear markets, unless you happen to get lucky and use leverage in a bear market. So no argument there. I just disagree that there are profits out there in the near term for being long almost anything. Longer term I think there are more profits out there in the gold space but as I've said I'll buy more at better levels than what we have currently.

    3. You're comparing the dollar against recent markets that have of course performed much better than the dollar, all during the recovery move in the market from March 2009 to April 2010. Of course all of those markets outperformed the dollar then, but during the next cycle I think they won't. The profits on both the short side and by being long the dollar aren't going to be as big obviously as when the market is in an upswing, but at least they are profits. Basically what the goal is to stay even or make some money while the rest of the market goes down.

    4. If gold and the GDX do breakout again, maybe I'm wrong on the near term timing and I'll except that, and also vice versa on the dollar and by being short. That's why I haven't taken big positions yet since I'm less certain I'm right since it's uncertain the trend has fully changed.

    5. I also feel that fearing a sudden printing of money as an investment thesis for staying long things is not valid because the charts would show you ahead of time whether a helicopter drop was going to have that big of an impact or not. I'm sure Bernanke and his buddies will tip off somebody before they do something like that so at least someone can make a profit, or either that the information would get leaked out. Either way I think the debt is so big that it's still not a factor right now no matter how much money they print, and that is why the dollar is still holding up.

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  27. I certainly wouldn't advocate buying just anything (and haven't for a long time) just precious metals and miners because they are the only thing that is clearly still in a secular bull market.

    Pull up a long term chart. You will see that gold is consolidating above support instead of below it like it has done for the past 9 years.

    That's a big change of character. Also gold and especially miners have now decoupled completely from the stock market & the dollar. Another huge change of character.

    As long as gold remains above $1200 I think one has to consider that the breakout is holding. And if you want to buy a breakout...

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  28. Justin,
    If you are going to add more at better prices where were you on Feb. 5th? That was the definition of better prices. You would now be hugely profitable.

    I always hear this crap about adding at lower prices but no one ever does.

    I think you are just dreaming buddy. If you didn't have the balls to add during the last correction you ain't going to have them next time either.

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  29. Anonymous,

    I don't even think I was reading this blog by February 5th so I wasn't posting here, but contrary to your assertion I was long the stock market from late 2008 (mostly miners back then) until the April-May time period. So I had some huge winners over the last year, frankly 2009 was my best year ever.

    Are you excited about buying ANV or SLW at this level? If you are good luck on those near term profits. Down the road they might be big winners but I'll buy them back after a 30% haircut. I think we are going into one of the worst downlegs we will probably see in our lifetimes over the next handful of years so I have no problem staying safe and on the right side of the market whenever I can. If that includes being long the dollar and short the market to catch the next big move in the market so be it. I frankly could care less which way the market or any asset class goes, I just want to be on the right side and not lose money.

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  30. Go over to stockcharts.com, and read over the inverse head and shoulders pattern. Then pull up a chart of SH, the single inverse S&P ETF. Boy that looks like a textbook inverse head and shoulders pattern to me. Also if you extend the SH chart back to late 2007, early 2008 there are two very clear inverse head and shoulders patterns back to back that formed the basis for the collapse in late 2008.

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  31. textbook pattern? Who cares? Gold was in a textbook cup-and-handle pattern, look where it is now!

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  32. You say "who cares", but then you say "look where it is now". Well I'll have some nice profits if that SH pattern plays out. Gold on the other hand has played out a 5th wave advance off of the 2008 low so it's near term prospects aren't so good.

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  33. Also gold's inverse head and shoulders pattern measured to about 1250 which is exactly where it is starting or already has put in a near term top.

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  34. Yeah you could have said the same thing in Nov. 07 and you would have missed the entire second leg of the C-wave.

    It's just my opinion but I think EW is probably the single most useless technical system ever devised. It's great for predicting the past but then what good does that do anyone?

    Gold moves in 4 waves based simply on human emotion and the "thin" characteristics of the precious metals markets.

    From an extremely stretched C-wave top gold always corrects violently back to the mean, usually testing or dropping below the 200 DMA. Then an aggressive A-wave advance begins out of those severely depressed conditions as value players accumulate to add to their positions.

    Once that advance gets overbought (rarely makes new highs) we get a B-wave correction that serves to knock sentiment back down. From there a C-wave begins. Usually it starts slowly. Sometimes taking months before it builds up enough energy to break out to new highs. As the advance matures more and more new money notices the advance and starts to chase.

    At some point the rally has gone on long enough that everyone (relatively speaking) starts to pile in. This ends up driving gold far above the mean. (25-40% above the 200 DMA. In the meantime the miners being leveraged to the price of gold get even more stretched above the mean (40-60%). Sentiment becomes wildly bullish.

    That's the point were we run out of buyers and the next D-wave begins which serves to wipeout all the excess bullish sentiment so the next leg can begin.

    At the recent highs we had none of the signs of a C-wave top. Sentiment wasn't even vaguely extreme. As a matter of fact it is right in the middle of it's historic level of the last 9 years. Neither gold nor miners are even mildly stretched above the 200 DMA.

    So until I see signs that the C-wave has trully run it's course it just doesn't make sense to worry about the little daily wiggles.

    Hey it is a bull market after all and in bull markets the surprises come on the up side. I want to make sure I'm in when a surprise comes :)

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  35. Yes I said "who cares" [about the chart pattern], and then I backed that up by demonstrating that gold is not at the price predicted by the cup-and-handle chart formation. What is your point?? And since you're so smart Justin, please tell us the price movements of gold for say, the next 2 months! Thanks so much in advance.

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  36. Toby, I just want to slip this in before trading starts tomorrow. Our bet is still on for 850. I was wondering, when (not if) we start our new leg up (perhaps even another big bull run), wouldn't that almost by definition require a dramatic washout to the downside? This is just jibber-jabber but something to chew on.

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  37. Sentiment has all ready reached levels that in some indicators is more extreme than what we saw at the 09 bottom. On top of that we now have 9 down days in 10 and 5 down days in a row setting up a four day rule possible trend change on the first positive day.

    I think it's safe to say we are seeing trully extreme bearish sentiment and breadth.

    Ideally I would like to see one or two more down days to push sentiment really over the top along with a large positve money flow into the SPYDER's (a sign that smart money insitutions are buying in front of an expected rally.)

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  38. Anonymous,

    There was an inverse head and shoulders on gold from say $750 to $1000 (the head of the pattern measured that far). So the projection is $250 + $1000 which is what we are at now. So that is why I say that pattern is complete.

    So that is an example of a head and shoulders pattern playing out and I'm saying the inverse head and shoulders pattern on SH is showing that the market could be in for an extended downleg in the near future. So that's my point.

    On gold, my money is on gold going down in the near future which is why I'm not interested in being long gold at this time.

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  39. Actually I'm trying to use gold as a "tell" for what the S&P will do. I don't know if that's valid but gold is struggling lately so I expect more downside.

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  40. It's not looking good for the bears this morning. Europe is up huge and so are the US futures. Not to mention the dollar is crashing.

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  41. Yes that's exactly what I was expecting: a sucker move up. Textbook perfect setup.

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  42. Yes and unfortunately that expectation will also keep you locked into a short position when the bottom arrives (Thursdays low still hasn't been broken). And you will end up giving back a big chunk of any profits you may have unless you have the stomach and capital to hold through the drawdowns that occur during bear market rallies. And if the cyclcial bull is still alive then your conviction will destroy your account.

    Like I alwasys say there just isn't a lot of profit potential in a bear market, but there is a lot of risk.

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  43. Yes I see your point. I just had some cheap inverse ETF calls that would give big returns if a slide down happens. Actually, I think the fall of 2008 was probably the only chance anyone bearish had to get-rich-quick. I read that it was a once-in-700-year event or something like that.

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