Most people who visit TrendVue are not aware that I began my trading life on the Vancouver Stock Exchange trading junior and senior gold stocks going back to 1987.
For my entire career in the brokerage business, the price of gold (POG) went in one direction. Of course, there were many amazing bear market rallies along the way, but the net direction was down, down, down. The downtrend started way before that, because as a teenager, I recall seeing footage of people lining up around the block at the bank to buy bullion, and how masses were ruined in the early 1980s when gold did the Mother of All Spikes.
By the time I left the office in 1998, the situation had not changed much, but of course, we knew that gold was in what technicians call a secular bear market, a timeframe that stretches for a generation of traders. I reckoned that since I was only 22 when I started, I would live long enough to see the day that POG would be up again.
The plan was that after the sell of a generation came for stocks and bonds, it would be the buy of a generation for gold, commodities and real estate, based on the work of my mentor, Ian Notley.
It was with Notley's roadmap that I watched and traded gold for years. In fact, I dubbed it the dreaded yellow metal because it was forever going down, and while it was at it, it would have moments where it would gap up or gap down, giving indigestion to us traders who carried big positions in the majors like Barrick and Newmont. In fact, I busted twice trading the dreaded yellow metal. The adventures are documented in Art Collins' book, When Supertraders Meet Kryptonite. The eventual upside to the early blowout is that years down the road, I was not sucked in by the dot com mania.
I've been told that depending on when a person came to play the market, their perception of price is forever imprinted. Since I arrived in 1987, I am keenly aware of how fast prices can move down. I also know that before the fall, the final phase of the bubble du jour goes up in a nearly vertical ascent, blasting out all the shorts, sucking in the longs and then explodes in mid-air like the Shuttle Challenger.
The pattern is tried and true, but the problem is that the end stage of a parabolic move is often very treacherous, because in the heat of the moment, people do crazy things such as bet insane size without accounting for the expanded trading range of the bars and wild volatility. Because the price is already way up after a long move, there is less than zero room for error.
Back in July 2003, I wrote a piece on gold, bonds and the Dollar. At the time, the weekly chart was in a big pennant formation that was easily measured using the Edwards and Magee formula. The monthly chart featured a classic head and shoulders bottom. We said:
And now, after the biggest move up in POG, let's take a look at what is in store for us next...As for gold, I know all the bugs are hot under the collar, insisting that deflation, weakness in the Dollar and the economy is going to drive it back to $1000 an ounce. I'm trying to imagine what the explanation will be if gold goes up as they expect, but on a recovery! One thing I learned a long time ago is that if you believe in fundamentals, it's cool. If you believe in technicals, it's cool. Just don't try to explain one with the other, as if one can be used to justify the other, and we won't look foolish when one part of the argument goes one way, and the other goes the other way.
Next. In December 2001, we did a couple of e*Trade radio shows, and discussed the Dollar's test the 120 level. We didn't think that it would pass the test and our strategy for the long-term was to shift into gold and the Swiss Franc. It's been a long slide all the way back to just over 90, and we can see that the Dollar is finding sellers here at the 20-week moving average.
04.01.07 14:59 #