re: 6/12 economic commentary

[John Chang]

Sharp corrections in the price of something are to be expected, in a bull market. Bull markets need to "breathe" if they're going to live, and this is just one of many "breaths" you can expect to see on the way up. Nothing ever goes up in a straight line. Just like certain entities keep saying we need to ditch linear thinking about reality, when it comes to market behavior, one really needs to ditch linear thinking there too.

We're coming up on the trough of the gold cycle - it bottoms around the end of June/start of July.

If you look at how much the previous upleg was retraced in 2005 and 2003, you'll notice that it has been pretty close to the fibo 76% ratio. Retraces usually end in some sort of fibo ratio. Usually. Taking the previous upleg, that would put the bottom in gold at around $585 or so. RSI on gold is in oversold territory, and it probably will get oversold some more. If it does, it'll mark a siginificant bottom of an order that the 2003 and 2005 bottoms made. Gold could potentially go all the way back down to the 200 DMA before turning around and resuming the bull.

In the end though, bear markets last as long as they want to, and then they end. And there's something I like to call "Gump Market Hypothesis" - you never quite know what you're going to get next.

And markets like to suck people in on the way up, and then try to beat as many hands into letting go before heading up again. Are your fingers bruised yet? I've got scars and bruise marks to show.

 

[PopHistorian]

I'd just like to comment that I do a little research in this, too and happen to agree, basically, that this trough seems like it should bottom out around $580 (unless it overshoots a bit), but may sit there a month or so longer than your guess (maybe through August), and then the next leg up, which could see the POG reaching a new high for the year before the end of 2006. The question is, if it troughs and then moves sideways for several straight weeks, how many will be convinced that the gold has run its course and exit their positions? Could be costly. The POG seems especially sensitive to so many psychological factors, though, and we live in an unstable social climate, so, who knows?

 

[on_strike_usaexpat]

Are your fingers bruised yet? I've got scars and bruise marks to show.

Oh yeah ... more than just my fingers ... but I've been long, strong and stopless since 2001. The worst thing one can do is lose one's position in a secular bull market. I refuse to commit that error as I am already sitting on a nice stash from being in (too?) early and having learned a long time ago never to get cute with leverage.

Also, a daily read through the links on the Signs page and also J. Orlin Grabbe's page keeps the bigger dangers with economic impact and the reality of the world economic situation in the forefront of all the short term noise TPTB throw out and use to create FUD to shake you loose from your positions and keep you within the job/debt/control Matrix.

As always, forever and ever and ever, this too shall pass...

 

[PopHistorian]

Anything but bone and raw nerves left on those fingers today? :) I see the POG is off $19.30, 75 minutes before the USA markets open.

 

[John Chang]

Anything but bone and raw nerves left on those fingers today? :) I see the POG is off $19.30, 75 minutes before the USA markets open.

I'm going to quote a line from _Reminiscences of a Stock Operator_ - "It's a bull market, you know". on_strike_expat will know what I'm saying.

Trading is some of the easiest work you'll ever do, but occasionally, you have to be willing to sit on tacks. The 200 DMA is above my cost basis, so the odds of me showing a loss are fairly low. 2005 was a tough year for me - i was sitting on losses for most of it.

 

[Mr. Premise]

Wow! Just checked gold and it's at $567.

By the way, John. What is RSI and DMA?

Don

 

[domi]

Wow! Just checked gold and it's at $567.

By the way, John. What is RSI and DMA?

Daily Moving Average.

Relative Strength Index:

http://www.investopedia.com/university/technical/technical6.asp

 

[Mr. Premise]

Thanks. Makes sense now. I'm a commenter, not a trader ;)

Wow! Just checked gold and it's at $567.

By the way, John. What is RSI and DMA?

Daily Moving Average.

Relative Strength Index:

http://www.investopedia.com/university/technical/technical6.asp

 

[John Chang]

Wow! Just checked gold and it's at $567.

By the way, John. What is RSI and DMA?

Don

There's two ways to read the RSI - divergence and level. Sometimes, the RSI will begin rising or decling ahead of price rises or declines. Sometimes. You can use that to anticipate trend changes and make decisions accordingly. The other way is to just watch the overbought/oversold level. Anything below 50 is oversold, anything above 50 is overbought. So you know when the RSI has turned from an oversold level, that a bottom is close by or has already passed. You can then make decisions based on that.

200 DMA is another yardstick - price action periodically returns to the 200DMA, and bounces off it from either the underside or the upperside. Gold is what I like to term "sloppy" - it doesn't bounce cleanly off its 200DMA.

 

[Justin]

Wow! Just checked gold and it's at $567.

That was a bit painful to see. I had a momentary urge to change my position, but I didn't and I'm still long.

Also, a daily read through the links on the Signs page and also J. Orlin Grabbe's page keeps the bigger dangers with economic impact and the reality of the world economic situation in the forefront of all the short term noise TPTB throw out and use to create FUD to shake you loose from your positions and keep you within the job/debt/control Matrix.

As always, forever and ever and ever, this too shall pass...

I completely agree :)

 

[PopHistorian]

OK, bottom reached? Now, as I mentioned, I think we can watch the POG go sideways for 6-10 weeks, during which time most weak hands will have given out and call-option prices will settle. Sticking my neck out with a prediction. :) We'll see.