Gold bugs squashed!

Gold bugs squashed!

Did anyone see that coming?  What a collapse in gold and silver! From a high of $1295 on 17 April – a mere two weeks ago – gold is down almost $80.  From a high of $18.65 on 17 April, silver is down $2.35.

I can claim that I advised my VIP Traders Club members to short both around 17 April, but I had absolutely no idea the collapse would be so devastating  (for the bulls, that is) and rapid .

On that date, hedge funds were massively long – here is the chart showing the DSI (Daily Sentiment Index) that tracks the highs and lows pretty well at extremes.

chart courtesy

The DSI is a daily survey of the bullish/bearish sentiment of professional money managers. At major highs, DSI bulls top out at around the 90% level (with a similar extreme bearish reading at the lows).  So after the impressive rally off last year’s low (which we captured), I was on the lookout for a high to take profits on longs and to position short – and that chance came in mid April.

Not only did the Elliott waves give me a clue a high was near but that DSI off-the-scale bullish reading was the clincher.  So here is the daily chart updated:

This chart provided me with even more clues that the 17 April high was very likely to be a major top – it hit my main blue trendline that had several accurate touch points.  And there was a small momentum divergence.  So that was it – I had my low risk trade.

Today, the market has dipped below my up-sloping blue trendline but is not near a Fibonacci support level.  The pink line is another possible trendline support.

If my Elliott wave labels are correct, this decline is wave c of 2 and when it ends, wave 3 up will start.  That should be a very exciting ride on the up escalator.

Here is silver

The decline off the 17 April high is one of the steepest I have seen in years.  In the regular Comex session, the futures have closed down 12 consecutive days since the 17 April high – the longest streak since 2001.

But as with gold, we are in wave c of 2 and when it ends, we shall be in wave 3 up.  This is the age-old process of clearing out the extreme sentiment and positioning of the money managers who have made the fatal error of herding and in believing in a bullish ‘story’ that spread like wildfire between the trading desks of the hedgies – and makes it into the MSM.  Remind you of tulips (see below)?

I can think of no better example of why you should trade against the so-called smart money managers when they herd to an extreme level. The reason they get it so wrong?  They believe in a story that makes complete logical sense, but as we know the markets are not rational and behave according to patterned waves of sentiment, or social mood.  That is why the Elliott wave model so wonderfully anticipates market turns.  No other system can give you this.

VIP Traders Club members rode the rally off the December lows and are now riding the decline in this roller-coaster action.  I sense I will be getting a lot of Christmas cards this year!

If you wish to follow my trades in gold/silver and many other markets in real time, join my VIP Traders Club details here.


First tulip bulbs – now snowdrops???

I am sure we have all read about the Dutch 17th Century Tulipomania phenomenon, that fascinating and incredible speculative mania so well described by CharlesMacKay in his definitive 1841 work on manias: Extraordinary Popular Delusions and the Madness of Crowds.

At the peak of the mania, a single bulb could sell for more than ten times the annual wage of a skilled craftsman.  It is generally considered the first example of a financial mania or bubble.  But when the inevitable crash occurred, prices resorted to more normal levels, as is typical in a bubble and its aftermath.

The key point is that this mania occurred at the height of the Dutch Golden Age when merchantmen would bring back valuable cargoes of commodities, such as spices, from the East Indies and make enormous profits.  Money was plentiful – and men just had to find some outlet for it in the form of gambling on such as tulips for which Holland has been famous ever since, of course.

Does this scenario remind you of any other period – such as today?  Too much QE money running up and down Wall Street looking for a bubble?

Just yesterday, I heard a clip on the radio that said that a single wild snowdrop bulb has just been sold for over a record £3k.  There has been a mini-mania in these bulbs for some time, but this snowdropomania reflects the very same speculative forces at work as it did four hundred years ago.  Humans never learn.


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