On May 4th we asked “The Precious Metals Correction”: Now What? Well today’s action may indicate some resolution to that question. The hopes for a Gentleman’s Entry into this nascent PM uptrend may well have been dashed. A Gentleman’s Entry is a second chance to enter the market at favorable levels for those who got caught sleeping and missed the initial move. It is a fabled event, which in reality seldom presents itself.

Since January 20th the PM stocks have been powering higher with the HUI index up over 137% before this current minor pullback. There is a large frustrated group of PM bulls who have found themselves either on the sidelines looking in or grossly underinvested. They remained skeptical that this rally is the real deal so delayed taking positions until further evidence confirmed the move, and now it has gotten away from them. The brutal 5 year bear market left its scars on both their wallets and their psychology. Not only have they been unable to embrace this rally, but most of their favorite PM gurus have advised them to stay safely on the sidelines and use the first “correction” to load up on the PM shares. I have stated that this is flawed advice based mainly on the principle that this is the beginning of a historic Phase I bull market in the precious metals in which the initial upthrust movement resembles a beach ball held underwater then released. In this rare set-up there is no significant retracement until price returns to “known values”. An example off this phenomena can be seen in the kick off of the great secular bull market of the 1980s-90s. In that phase I, the market blasted off and never looked back, leaving all doubters and skeptics stupefied on the sidelines. Take a look at what this great advance looked like and ask yourself where was the gentlemans entry? Where could those caught sleeping have gotten in at yesterdays lower prices? You are right, there wasn’t one.
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So this is the dynamic dominating this advance and it can be validated by the predominant psychology that exists. We all know that we have a slew of gold bug wannabes that want into this bull advance in the worst kind of way. They have lusted for a bull market in the PM stocks for 5 years, they chased false bottoms all the way down in the bear market in pursuit of this dream. We now actually have a bull market, yet they find themselves on the outside looking in. Blame their skepticism or their guru advisors, but there they sit getting ulcers watching the train leave the station without them.

They want a correction and they want it in the worst way!

But here is the thing, a secondary reaction comes after everyone has gotten on board and then begin leaning over on the bullish side. It comes not when it is wanted or expected. It comes when the consensus believes that prices must now advance higher. A correction in the PM stocks seems wanted now more than I have ever witnessed, so I suspect this weeks weakness is simply normal breathing action of the market and NOT a prolonged decline. Price drops will be welcomed and immediately bought by early claim jumpers, thus arresting the decline. It seems the past few days may have even attracted fresh short sellers. If the HUI can now advance to new highs, these shorts may receive one of the bulls religious experiences which he especially enjoys delivering. Mr. Bull also has no desire accommodating those bullish sidelined sympathizers, in fact he relishes seeing them looking from the outside in with hollow eyes.

When the “big one” comes, the skeptics will have already been convinced by the price action that this bull is real and wont welcome the correction.

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Ride the Bull . But you got to be Tough .

Plunger