Q: Perhaps everything is more nuanced than you make it. Yes, the stock market has to break. That’s happening now, but then it has to have a sharp rally. This is needed to suck in the last of the “buy the dip” crowd. Then it should roll over and take out the first panic low, which we are in now. Only after the market breaches the first panic low on its way further down will serious money move into gold and gold shares. Remember, until we know otherwise, the “plunge protection team” is still in charge!
A: I agree with your analysis as far as it goes. However the serious money flowing into gold shares may not start with the low in the general shares market: Dow, S&P 500 etc. It is more likely that the first wave up in gold shares will be driven by short covering in the gold shares. The serious money will come in to buy in the second up move after the shorts cover. The safest time to buy options on the gold mining shares is on the bear market bottom before the short sellers cover and before the public moves from general market to gold shares. In any case, we still need to see an ending wave pattern and specialist short covering on the gold shares before I call an end to the bear.
August 24, 2015
Q: Did we get the general market shares change in trend to a bear market last week? And, does that mean we now have two of the four criteria you are looking for to call a bottom in the bear market on gold?
A: Yes. We clearly had panic selling and the headlines included forecasts that the DOW could collapse to 5,000. Cycles repeat but not exactly. At some point we will probably see the DOW and gold go up together. Ludwig von Mises, in his classic book Human Action, referred to this as the crackup phase of the monetary collapse. I also recommend you read Murray Rothbard’s Man, Economy and State. Together, that makes for a 2,000 page reading assignment. Let me know when you have finished it.
Q: Are the following headlines what we call a panic and is that a lagging indicator for gold?
News Headlines
Stock futures fall sharply . . .
Chinese president at center of concern as markets begin new week . . .
Angry investors capture exchange chief . . .
A: It is a lagging indicator for the direction of the stock market but a leading indicator for gold. In the first sell-off, a margin call goes out and people dump everything necessary to meet the margin call or get sold out by broker liquidation. It takes some time for this to happen on a large scale and for investors to reinvest the proceeds in gold mining shares. This is why it is a leading indicator for the gold mining shares. It is not the end of the story.
We still need specialist short covering and a termination pattern in the gold shares in order to call a bottom in the bear market. Best guess: 2 to 6 weeks.
Futures Market Commentary (above) by Arthur Fixed
[box type=”info” style=”rounded” border=”full”]The above is from Arthur Fixed the author of the Art of Speculation during Civil War – Sun Tzu Meets Jesse Livermore is a private manuscript copyrighted 2012 by Art Fixed.[/box]
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