This post is not meant to be a short-term timing tool (that discussion is there, but unimportant for most people), but a way to understand sentiment. The PMs are a very emotional market. It is very dangerous to get bullish with the crowd on the big rallies. The selloffs quickly ramp up the bearish sentiment. The post below was written a long time ago, and is re-posted into all of the big selling waves in gold. Sentiment shifts/crowd behavior never changes. Confidence rallies with price, and drops with price. On 9/11/17, I re-posted some wildly bullish articles around the internet about gold regarding the “bullish trendline breakouts, new highs, being above (useless) moving averages, and a potential pause in rate increases”. Now we’re starting to see the opposite – “failed breakouts, interest rate increases, monthly reversals,and being below (useless) moving averages”. There continues to be widespread ridiculous commentary about how interest rate increases and “real” interest rates are supposedly bearish for gold – here is a post debunking those views. Gold hit its secular bottom two days after the first Fed rate increase in nine years, and has rallied substantially along with the rates, yet people still don’t get it.
The original post is below. Keep in mind it was last updated on 7/9/17, so the dates are relative to then. But the general sentiment commentary can be for any time, any week, any month. Yes, gold is in a secular bull market, and the juniors are closing in on a true bull market:
Gold is in a bull market, but it’s still under the influence of an accumulation area, meaning more volatility – opportunity. The true uptrend "breakout" is coming this year. The secular bottom was in December 2015 , and I stuck my neck out and bought gold even with the worldwide ultra-bearish view of PMs then – and wrote a post on 12/9/15 discussing why it was finally time to buy gold, and especially the miners. We’re up substantially from those lows. But far too many people gain tremendous confidence, become complacent, and fear “missing the move” in an uptrend, right at the worst times to get confident, after/into a big rally, (around the highs). And far too many people lose confidence in an overall uptrend/bull market right at the worst times to lose their resolve, after/into a selling wave (around the lows) – opportunity. That confidence and fear of missing the move (at the worst time) just happened into the 6/6/17 highs, when there were numerous calls for a “trendline breakout”. My view was the opposite, and used the recent selling, and “bullish jobs number” to buy.
In a bull market the big scary reactions are the time to use our emotions in our favor, by using reverse psychology on ourselves. Is it easy? No it’s not. But if you’re feeling scared, gloomy, and can’t imagine there could be a bottom setting up, then so is everyone else. And these lows are also at the same time that most of the market shorts are getting super confident (weak hands). Which is just like how most of the market longs get super confident right into the highs (weak hands), as per the second week of February in the miners. So it’s in the big selloffs when we need to pretty much put the charts aside and step up to the plate. Because who cares what the charts look like if we allow our emotions to rule.
Complex methods are useless for almost everyone, especially myself. Because 75% (or whatever number, you get the point) of this business is about psychology – meaning our own psychology, and also being able to interpret, pretty well, everyone else’s (the crowd’s) psychology. This may sound weird, but instead of spending so much time learning a “method”, you may want to spend time truly understanding your own strengths and, especially, weaknesses. And also learn about the psychology of the crowd. Two outstanding books to help learn crowd psychology are “Nobody Knows Anything” by Bob Moriarty and “Extraordinary Popular Delusions and The Madness of Crowds” by Charles MacKay. In the bigger picture, understanding our psychological/emotional makeup, as well as that of the crowd, is much more beneficial than being tied to a method. But if we can mesh our newfound understanding of psychology with a solid method, then that is a pretty powerful approach. And actually, it’s the approach to markets which is the most important thing. Who cares what the method is if we can’t pull the trigger (unemotionally) at the “best” entry points?
It happens time and time again. People have all of their great looking charts with their fancy moving averages, support areas, and trendlines. These charts look great when prices are in a sustained move higher. The moving averages all “say” buy, buy, buy. The support areas are “holding”, and the trendlines are slanting up, up, up. People look at charts then and see things “are looking good”. Who wouldn’t be confident? And the only ones with pain at that point are the shorts, plus the people who were too afraid to buy into the previous fear-based selling, thus these folks are “missing the move”. Missing the move can be as painful for many as losing is for other people. Then the selloff starts, and the confident longs wish they’d sold. But they look around the internet for the GURUS (who were bearish at the bottom), to give them reassurance. And the selloff deepens, and the mood changes. and the charts look horrible – support areas get broken, trendlines get broken, and moving averages are all pointing down. In short, the charts look horrible, and the vast majority of people, who are tied to their charts, get as bearish as everyone else – so they freeze. And then, once again, they do nothing right at the potentially best entry points into markets.
Markets haven’t changed since the Tulip Mania. Meaning ninety percent of the people will never be able to pull the trigger at the best entry points, and are too confident to sell into the greed. Don’t be one of them.