Loading ...Battle for the Matterhorn : Update
The gold bull market began back in mid-December 2015 and was soon followed one month later with the bottom in the precious metals (PM) stocks on January 20th 2016. Gold has gone on to build out a complex double Cup & Handle pattern and encountered its first major resistance at the previous “Matterhorn” peak of $1309. This is the first major milestone in the young bull market.
The initial PM stock rally since January is a Phase I of three phases in a bull market. Phase I is that period where stocks return to “known values” after having been knocked down to below these known values in the previous bear market. Last autumn the PM stocks were completely abandoned on the bargain table and available for purchase to anyone who recognized their deep value. Once the bottom was in in January their rise resembled a beach ball held under water being released. That is classic phase I action and was described in my essay posted on April 21 2016.
Battle for the Matterhorn- Strategy update- Be right, Sit tight.
A study of Phase I psychology and the danger of following gurus.
I last reported that the correct strategy for Phase I is to hold your position. The difficulty of this is because phase I is characterized by skepticism and refusal to believe the trend has changed. The previous bear market bludgeoned investors mercilessly with every rally soon flaming out and immediately led to more pain. This resulted in a conditioning process which caused position holders to sell after any profitable trade in order to survive. It’s not easy to reverse 5 years of psychological conditioning. If one understands however, that we have now entered a phase I of a bull market he can adapt the proper strategy which of course is be right and sit tight. That’s the correct strategy until we reach known values. After the phase I objective is reached then we change tactics to adapt to the upcoming Phase II of the bull market, but for now we be right and sit tight.
Now I must address a rather egregious example of not understanding this process. One of the most destructive things any participant can do in a market is to blindly follow a market guru without engaging ones own critical thinking skills. A guru in market circles refers to someone who goes beyond investment analysis into the realm of being a reverential figure to the student. Typically it involves engaging the ego in ones market calls. We can recognize this by the use of the phrase “I can guarantee” or telling the market what it should be doing or offering frequent opinions without much solid objective analysis.
Wise, authentic market observers constantly guard against these tendencies. I recall when Richard Russell was an active writer he would immediately cancel your subscription and refund your money if you referred to him as a market guru. Yes folks, it’s that dangerous.
Recently on May 30th a writer was critical of my Matterhorn analysis on this site. It’s puzzling that he would feel the urge to directly attack and mock my perspective rather than simply present ones own analysis and letting it stand on its own merits. I can only conclude that his ego was so engaged and threatened that he needed to lash out rather than allow the market to be the final arbiter of ones investment position. I was called “the voice of complacency” because I would not retreat to the sidelines when gold neared $1300. This writer clearly mistook my steady hand on the tiller for complacency. As mentioned above, the proper strategy in phase one I is to be right-sit tight.
It is my experience that trading ones core position in a Phase I impulse move typically results in one ending up watching the remainder of the move from the sidelines. In the mentioned article I was quoted out of context saying “bulls won’t get a reentry into the metals sector”, then openly mocked saying “I’ve got news for you, We already have a 17% better entry”. At the time this was correct as the GDXJ had dropped 17% from its peak, however, three days later the GDXJ gapped up 8% before the open and has moved up since. So the obvious question becomes since your subscribers were directed to the sidelines did they get in before the launch? I would think the majority probably did not. The point of this exercise is to validate the phase I “be right-sit tight” strategy. Trying to trade the move normally just results in being too cute by half and ends up with being on the side lines watching the train leave the station.
As a writer at Rambus Chartology I have proposed that “Known Values” may be in the vicinity of the HUI 370 area and therefore offer themselves as a price objective. I am not making a prediction as I don’t tell the market what to do, rather I am discussing possibilities based off of chart action. Here is one of the possibilities that still appear in play.
Plunger
Thanks Plunger for the great work. I don’t do any charting but spend a lot of time studying what so many of you put out. I try to look at the behavior of the charts in general and the commentary you guys add.
I keep learning a lot and just stay open for anything.
And on another note, I think because the “Guru” is a climber, he freaked out over the mountain metaphor! He didn’t want to be “The Forth Man On The Mountain!” HA!
Your sharing here is very much appreciated….and actionable! 🙂
Hey Plunger, Gary owes you a burrito!
By the way, who the hell bets a burrito?
LOL
Plunger,thanks for this phase analysis of the bull market. Fascinating stuff, and profitable.
Great stuff. Tx for the reminder on the importance of market phase.