Originally published by Chamber of Merchants
What a ride. As I expected, we got pretty close to the $1250 mark. I am prepared for a dip below, but we may not be going there due to the heavily oversold conditions presenting in the Gold price. Either, way I am mentally prepared as I expect a very strong and aggressive rebound shortly afterwards.
Gold’s Oversold Conditions
This is the final chart I’m reflecting on during this very blood-soaked downturn in the gold price. In my humble opinion ,it’s designed to knock out stop losses, flush out retailers and set the banks and funds up for the next push in what I believe is Gold’s bull market rally.
Below is the daily chart for Gold. I have marked each point where Gold has been oversold on the TSI and RSI indicators for the past 2 years. For me, this is by far the very best entry point into the gold sector. From a Merchant’s perspective, while everyone is turning bearish and negative on the precious metals, this is the very best time to enter if I were not already in. (I entered slightly early so my current drawdown is around 27k as I write this). Please read my post on my perspective on drawdowns and pull-backs in a bull market. Remember there is a difference between a retracement and holding a failing company. As a Merchant I only place my money where I have confidence in the near-term future of the company’s share price. I would not hold for the sake of holding.
In the above chart, it is clear that each time the gold price reaches oversold conditions on the RSI and TSI, there is a very high probability that it is followed by an aggressive bounce. Remember, there are no certainties, but high probability trades are the staple food of a Merchant. (And it’s better than engaging in low probability, emotional trades).
Current Market Emotions
This phase is the horror phase, despair phase, the nightmare phase. This is when all the good feelings get taken away from emotional retail traders and they are caught in a traumatic experience. This is the phase where the novice trader wants someone to hold them and make them feel better, telling them “it’s going to be ok”. As I said before, this downturn is design to scare retailers out of the market and hence we get oversold conditions where everyone that wanted to sell is pretty much doing so. But when everyone is getting onto the sell side, the balance starts to tip and we experience the aggressive bounce in buying which happens over and over and over again if you look at the chart. If I were all cash today, I would be moving into some bargain priced miners over the next few days. That is why I get excited about where we are at in the trade cycle for precious metals.
How Long does this Nightmare-Blood-Soaked-Hell phase usually last?
If you look back at the daily chart, each oversold condition lasts between 6-10 days roughly. We’re roughly on day 3 or day 4 of this pullback phase. I can only reflect on the past and assume that this time, it’s no different.
I will reflect on my outlook for the next few weeks in the Weekend Report.
Conclusion
I’m pretty relaxed and excited right now. Fear has no place in the mind of a Merchant.
If you’ve been following my entries, you will would that about a week ago I started on a theme of “Think more, Feel Less”. I hope it is clear now why that was the current theme. I share it because it is my internal thinking process which I require to shield against my “Flight or Fight” brain.
In oversold conditions during a bull market, we are all meant to be flushed out. Not only can the big and smart money see where the stop losses are, but they also know how we feel and they push that emotional button day after day until we are meant to capitulate. As I mentioned, I get excited around this phase of the price action because I have a high probability hunch about what the next few weeks are going to look like. My note-to-self is a reminder that this nightmare bloodbath will happen again. I would like to be cash to go on a shopping spree for bargain stocks when it happens again.
Now is the time for us to ascend to a higher platform of thinking. Remember, if you do what everyone does, then you’re balance will looks like everyone else’s. In a bull market, you can enter practically anywhere and still make money for years to come, if you can overcome yourself and the mind’s inherent weaknesses.
Looking forward to the weekend report.