Tuesday, June 28, 2011

Gold's Expected Crawl and TSI (25,13)

Click on the chart to ENLARGE
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I just wanted to write a quick post this evening to call attention to a couple of subtle phenomenon of gold's intermediate cycle conclusions. We should be able to use this knowledge to help ride this bull down to the bottom of this correction and jump back on the long side of the A-wave.
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Before I get to these two phenomenon, I just wanted to express what my study of gold in the past few weeks has taught me.  And it is this: people's emotions, call it sentiment if you wish, lead them to act in rather predictable ways.  For us in the stock market, it's the old swing from optimism to dispair, fear to greed, and overconfidence to flight.
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In the case of the parabolic, for example, when it tops, it explodes. That is, when bullish sentiment reaches a peak and the consensus agreement is that this investment is the surest way to make easy money ever invented, the market runs out of buyers, sentiment turns to panic and the elephants cannot get out the door fast enough.  In fact, it takes several days for the smartest ones to get out....and the rest are left behind wondering what just happened....why their AGQ was $400 and in the blink of an eye it is now less than $200.
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Then, predictably, optimism is the emotional cure for disaster.  Things will get better.  And price rallies for some time as nerves begin to sooth. Sometimes, if fundamental conditions are just right, this rally can dally along for a few months - maybe even coming close to the previous high. In any event, more elephants get restless being stuck in a position that is under water, so they hold their breath and run.  Price collapses.
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What do you suppose will happen next? Well, chances are good that the elephants still in the room will figure the one's who left were traitors or some such nonsense.  Maybe even decide to double down at these good prices and wait it out.  So price creeps higher and now makes a bear flag under what was previously a reaction uptrend line.
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But going without bread and water for a long time is getting really uncomfortable.  Several days of this and some more elephants bolt for the door. Then a dozen, then a hundred. It becomes a stampede of sorts, but they cannot all get out.  And why can't they get out, you ask? Well, I don't know.  It's human nature. Maybe we could call it denial. Maybe character. Beat's me.
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So price drops precipitously but most that have been left behind manage to cling to a little line on the chart.  Like this line is going to save them or something. It's called the 50 dma. And this brings us now to where we are in the current story.
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Price will crawl along the 50 dma, maybe even close above it a day or two.  You know, it's that optimism thing, right? Everything is going to be OK. Just say that to yourself over and over again.
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Sadly, we know how the rest of the story plays out before it happens. More elephants lose optimism - having been told that story about 2 or 3 times too many already. And the final race to the door begins, and continues, until there is no one left behind who really cares. And that is the bottom in price.
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The other observation I wanted to offer in this post is the uncanny accuracy of the TSI (25,13) to get very close to the exact bottom of each intermediate correction. I encourage you to put it on your chart and see for yourself.

8 comments:

  1. John,
    This is not short but it's great. I'll make this short. God bless you John for the wonderful work you do and for keeping the enthusiasm going. You are one of a kind. M-

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  2. Excellent insights and analysis as always, John. The tie to the predictability of human behavior was an added bonus. It pretty much echoes what Edward Bernays put into play years ago as he launched the modern day phenomena known as "public relations."

    "If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it." - Edward Bernays

    Thanks so much for assisting us in getting to the exits ahead of the herd. We will especially appreciate your help in the next 2-3 weeks, watching for the TSI to signal the intermediate bottom.

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  3. At which time frame do you think the bottom will be in for silver? I have SLV 33 puts of July. Thanks, great analysis.

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  4. as always nice post John. Thanks Rags

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  5. Great analyze, thanks so much . Silver may also crawl to around 35 and head down ? It will take days to up to 35 but take hours to down.
    Tracy

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  6. Hi, Can you advise me some litrature about cycles. I always see "left/right translated cycles" in your articles, but i can't uderstand their nature..

    Thank you very much for your blog!

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  7. Cycles? Well Gary savage on smart money trader, trades gold and his world revolves around cycles. On his blog he just did a extensive lesson on intermediate cycles

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