Sentiment Speaks: Time To Buy Gold To Prepare For A Stock Market Crash?
Summary
- Price Action Over Prior Week.
- Anecdotal and Other Sentiment Indications.
- Price Pattern Sentiment Indications and Upcoming Expectations.
Price Action Over Prior Week
Over the last week, the metals and miners have been experiencing a pullback/consolidation. There has been a lot of whipsaw, but, overall, it has simply acted as a consolidation of its recent gains.
Anecdotal and Other Sentiment Indications
I don't know about you, but I am sick and tired of all the commercials, all the articles, and all the missives which invoke fear of a stock market collapse in order to convince you to buy gold. I am just sick of it.
The common refrain we have heard from the peanut gallery is that the metals act as a "safe haven" during periods of market volatility. Moreover, this has further led to the common belief that gold moves up when equity markets move down, and vice versa. If this is why YOU buy gold, then I strongly suggest you reconsider your perspective. Nothing could be further from the truth, especially if one is interested in the facts, rather than the propaganda of fear being promoted by Wall Street analysts, article writers, and sellers of gold.
One of the biggest fallacies being propagated by the uninformed is that gold is a safe haven against equity market volatility. In fact, it has become one of the most common "assumptions" accepted by the market at large. I have seen many recent articles along with many commercials of sellers of gold that scare people into buying gold as protection from impending stock market doom. And, they are all completely wrong and I just can't take it anymore. I feel the need to speak out and provide the truth so that investors can make an informed decision about their gold purchases.
Now, don't misunderstand me. I am a huge metals bull. But, I buy metals because I see the potential for a multi-decade bull market about to take hold, not because I see a massive stock market collapse (which I don't right now). I also don't prey upon investor's fears in order to convince them to buy gold, because, believe it or not, I expect for the equity markets and metals to continue to rally together. Yes, you heard me right.
I have not seen a single one of these "doom" articles note this fact, but, since early February, the metals and the miners have been rallying WITH the equity markets. If you don't believe me because you have bought into all you have been sold about how they trade inversely, then I suggest you look at the two charts side by side in 2016.
You see, metals have gone up and we have not even had a stock market crash. In fact, as I warned would occur in late 2015, they have rallied together. I bet many of you did not even think this is possible. Now, after you pick your chin up off the floor, you should also realize that this is not the first time this has occurred, nor will it be the last.
So, allow me to show you why only expecting an inverse correlation between equities and metals is just outright wrong.
We will begin with the 2007-2009 time frame, which evidenced the most significant period of market volatility since the Great Depression. Let's see if we can glean anything from the metals action in order to determine whether they are the safe haven everyone is selling you on.
We all know that the S&P 500 topped in October of 2007 and began an estimated 300-point decline into March of 2008, and then we saw a corrective bounce in the equities for a couple of months, before it continued to head down. During that same period of time, even while the markets were heading lower, the metals continued to rally strongly. Here we have "evidence" of precious metals supposedly rising during a period of market volatility.
But when we then look toward the May 2008-March 2009 decline in the equity market, we have clear evidence that the metals also experienced significant declines within that time period. In fact, gold lost a little more than 30% during that time period. So, here we have a period of time where the metals were moving in the same direction as the equity markets, and clearly not acting like a supposed "safe haven." But gold also found a bottom and began to rally four months before the equity markets, after which time, they began to rally together again for two years.
So, when one is presented with these facts, does it make sense that the metals are surely going to rise during periods of market volatility? Are metals really the "safe haven" everyone believes they are during down markets? Are these markets inversely correlated as so many claim?
If you need further evidence, consider this additional fact. Back in 2008, the folks at Elliott Wave International published a study that showed that in 10 out of 11 recessionary periods since 1945 gold experienced a negative total return.
For further evidence that one should not assume the two markets move inversely, one simply has to look back to the period of time between 2003-2008. During those 5 years, the metals rallied alongside the equity markets. And, no, this is not a misprint.
So, when one is presented with these facts, can you really believe that metals are the "safe haven" everyone claims they are during down markets? Can one also come to the conclusion that these two markets trade inversely with each other? So, should you be buying metals only because you believe the stock market is going to crash?
Again, when one actually looks at the facts rather than the supposition, fallacy and fear being sold by most of the article writers and gold peddlers out there, it tells you to ignore much of what is presented about this market, and begin to think for yourself. In fact, you now know more about the metals market than most of the article writers you have been reading.
Much of what you have been fed about this market is simply wrong, and until you are able to look objectively at the market, you will likely see long periods of time where you are on the wrong side of the market purely because you bought into these suppositions, fallacies and fear. Or, did we all forget the pain of 2011-2015 already?
Price Pattern Sentiment Indications and Upcoming Expectations
Now, after saying all I just did, I can see the potential for the metals to trade inversely to the equity market in the near term. Yes, I know I just showed you that you cannot assume it will happen all the time. But, there are times this does occur, and we have a set-up in place for the metals and miners to head higher, while the equity markets pull back. Moreover, I can assure you that those same article writers who have not burdened by the facts will be calling for yet another stock market crash. However, all we will be seeing is a pullback in the equity markets before we rally up towards the 2500 region.
I also have to warn you that there is even the potential that the market may not break below 2147SPX. Should we be unable to break below 2147SPX, and then break out over 2212SPX, there will be no near term pullback, and the market is simply going to continue to rally to 2350 before a pullback/consolidation will be seen.
As far as the metals and miners, not much has really changed from my last article.
The current price pattern is most clearly seen in the GDX structure. As long as the GDX maintains over the 29 level, we are setting up to run strongly to the 39-41 region, which can even be struck within the next month should this bullish set up trigger over the coming week or so. This would also suggest that GLD is heading to the next target region between 142-145 and silver can reach the 22.14-23.33 region.
This article was written by
Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).
Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.
For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.
As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.
As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.
Disclosure: I am/we are long GDX AND SLV CALLS, AND A BUNCH OF MINING STOCKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.