Human nature is nothing if not consistent. I’ve seen this dozens of times. At every single intermediate cycle low traders begin to doubt. No matter how strong the bull signals are, when a correction occurs traders find, or make up reasons for why the bear market is still in force or a new bear market is starting.

Folks, bull markets have to have corrections. They don’t signal the end of the bull, they are just profit taking events when price gets stretched too far above the mean, or when sentiment becomes too bullish.

A couple of months ago I warned that the metals would need to either correct, or trade sideways for a while as the entire sector had just gotten too stretched above the 200 day moving average. Well as it turns out it did both. It churned sideways for 3 months and then corrected as well.

This isn’t the end of the rally though. The metals just needed a profit taking event to cleanse the sentiment after the baby bull rally. That rally delivered a 180% gain in mining stocks. Seriously, after a rally that big there had to be some kind of correction. Gold also rallied enough to test its bear market trend line. Not surprisingly it didn’t make it through that on the first try. On the long term chart you can see that gold is just backing off to catch it’s breath. Nothing unusual is happening. Once the correction is over then gold will make another run at that trend line, and this time it will break through.

Now we are coming to the end of the correction. Sentiment has been reset. the 200 DMA has had a chance to catch up to price, and gold should be ready for the next leg up in this new bull market. As I’ve noted before the bloodbath phase of an intermediate degree correction usually lasts 4-7 days. Friday was day four. If the bottom didn’t form on the employment report Friday, then I’m going to say it will form by Wednesday of next week.

Once we have a confirmed bottom then gold will continue its A-wave advance. A-waves tend to be quite explosive and can test the previous C-wave top but don’t usually make new highs. I’m going to take a guess and say this A-wave will at least reach 1550 before topping and it may even come close to testing the all-time highs as the dollar is due for a 3 year cycle low next summer.

Don’t let the correction knock you out of your positions, or prevent you from buying the dip. This is a bull market, and bull markets naturally experience corrections.

I should also mention that this correction is the yearly cycle low. YCL’s tend to be the most vicious corrections of the year… but they also generate the most powerful rallies once they are over. The YCL in December last year generated a 180% rally in mining stocks…

Like our new Facebook page to stay current on all things Smart Money Tracker

Gary Savage
The Smart Money Tracker

Gary Savage authors the Smart Money Tracker and daily financial newsletter tracking the stock & commodity markets with special emphasis on the precious metals market.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.