In An Epic Crisis Strong Beats Smart
Jan 24, 2012
- How much gold have you bought since the lows of late December? Hopefully, you bought none. Click this gold battle zone chart now.
- When the price of any asset is in a rising trend, as it is now, the only thoughts in your head should be to hold your positions or book some profit. The gold asset has been in a rising trend against the dollar since late December, so you really should have bought no gold since then.
- Gold has rallied over $150 on this move from $1525 to $1680. The reason you bought no gold since the $1525 area lows is because you already bought into those lows, or should have, as gold declined from about $1923 to about $1525.
- There is an enormous financial difference between one professional investor who bought his own fears into the price zone of $1525 and another amateur investor who bought his own confidence into the rise towards $1680.
- The professional investor is now sitting on substantial profits, and is booking some of those profits. The amateur investor is telling himself substantial stories about the future. Professional investors refer to the stories told about the market’s future as pipedreams.
- The bottom line is that you don’t need a reason to buy gold when it is on sale. The sale price is the reason to buy. End of professional investor story.
- Think carefully about where you are emotionally at this point in time in the gold market. Uptrends begin with fear. Are you afraid now? Most investors are not afraid now, but they are not greedy, either.
- A substantial amount of loss-booking on short positions by amateur investors has occurred on this $150 move in the gold price, but I am not seeing any substantial buying of new long positions by the amateur group.
- The good news is that where amateur investors are, both emotionally and in terms of placing risk capital, suggests that the gold price can go quite a lot higher.
- As gold fell towards $1525, amateur gold investors talked a lot about shorting gold if it were to approach the downtrend line on the chart I showed above. Suddenly, we are near that downtrend line.
- The confidence of the amateur bears to short gold at the downtrend line has been shaken by the $150 price rise, while the confidence of professional investors to short this market is growing strongly.
- The price zone of $1680-$1705 is highly like to see the commercial traders begin to lay in heavier short positions as amateur investors begin to buy new long positions in heavier size. That doesn’t mean that price reverses immediately, but those who enter the gold market here on the long side are taking on unnecessary risk.
- If you failed to buy any gold as it declined towards $1525, then I would urge you focus on awaiting the next “severe emotional discomfort zone” before placing any new buy orders.
- For the rest of you that did buy into the decline, please don’t underestimate how high this market can continue to rise before suffering a major correction. You worked too hard to establish your positions into the lows to sell them all off for peanut-sized profits.
- Click this key oil chart now. You are looking at a multiple head and shoulders bull continuation pattern. It is composed of two heads, two shoulders, and two necklines, and it is very symmetrical. If it plays out in textbook fashion, oil could rise to $130.
- This could be a time for options players to step up to the market, preferably with a mix of 70% call options and 30% put options, with the total risk capital allocated to the trade not exceeding 1-2% of your account net liquidation value. Most options traders place about 100 times too much capital on their trades, but can’t figure out why they get obliterated emotionally and then financially, in record time.
- Natural gas had an enormous day yesterday. Click this epic UNG volume chart now. I carry both long and short positions in all my long-biased asset accumulation programs, and natural gas is no exception to the rule. Never carry more short positions than longs, if you want to respect the asset you are accumulating as wealth itself. Assets don’t exist just to “make bucks” for you. They are wealth.
- Most analysts think the growth of natural gas supply with shale drilling, whether real or implied, is bearish for natural gas. I see the growth in the use of natural gas as something that is strengthening the asset. The more people that use an asset, the stronger it is. Natural gas soared about 10% in the past 2 trading days. While most investors focus on how high or low the price can go, I urge you to focus on gaining control over the entire price grid.
- There’s a reason I’m laughing this morning while most natural gas investors are out of the market after booking enormous losses, and it is because I carry short positions, and I focus on being able to emotionally and financially allocate risk capital all the way to a price of zero on the long side of natural gas price gridlines.
- Focus on buying the highest quality assets at the prices you know can never occur, if you want to build maximum wealth and emotional control. As UNG careened into the $5 level there was likely an enormous changing of the “natgas guard” from weak hands to strong, and the only question could be, are you one of the strong?
- Click this key Dow chart now. A rising wedge pattern is similar to a triangle pattern. When price moves towards the apex/nose cone of a triangle, it can be stated that the pattern has failed. When price moves towards the nose cone of a rising wedge pattern, it often bursts topside before tumbling down and fulfilling the bearish implications of the pattern.
- What do you see on the Dow chart today? There is a key wedge pattern in play, and price has pushed into the nose cone and then burst out topside. It is interesting that gold is approaching a key downtrend line while the Dow sits where it is. Bull and bear players of size are making their way into the price arena, and they are ready for substantial battle. You need to prepare yourself emotionally right now, to endure whatever comes next, rather than trying to predict your way through this crisis. Don’t get smarter. Get stronger.
- Click this GDXJ super bull wedge chart now. Note the red bear wedge that occurred late last year. Think about the difference in the size of the two wedges. You saw how far price moved to the downside from the bear wedge pattern.
- The price of GDXJ is extended, but only in the very short term. The gold junior stocks bulls have a bull super wedge price pattern in play, with enormous upside implications!
Jan 24, 2012
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