The damage in the precious metals began back in November when the critical 460 support level was broken on HUI. Anyone who did not acknowledge that the violation of this level (the neckline to the 2011 topping pattern) was important – or as NFTRH called it “abnormal” to a bullish case – was looking through rose colored glasses.
After that came a bottoming attempt, a failure in January, numerous bottom calls from around the gold analyst spectrum and a series of bear flags that served to reset over sold status just enough to fuel each new plunge.
HUI daily chart, from NFTRH
The first inkling of the most recent warning sign was noted immediately, in real time in this NFTRH update. There is also a target of HUI 250 in that update. This target has been on watch for months now, as has another at 100, which has seemed improbable but for its measurement off of a massive topping pattern. 260 is a 62% Fib retrace of the entire secular bull market. A trend line goes through the low 200′s. 100 is a cold, hard measurement.
To be ready for these targets, first you need to be intact. Here is the key excerpt from last week’s update linked above. This is all about discipline, not hope.
“I have used a combination of selling, cash raising and bear positions to squeeze out a small gain thus far this week. But it gets tiring compared to the comfort of simply sitting in cash, which has been the recommended risk management position for most people. If the HUI continues to look as bad as it does now my goal is to sit this one out as long as necessary. We will keep tabs on what I think is going to be a great contrary play, but we will not force it. We should let the technicals guide.
So wearing an unbiased technical analyst’s hat, we have a bear flag in the making. If it breaks down, HUI would lose the 50% secular bull retrace level, which is also the 62% cyclical retrace out of 2008. 250 could easily be next up, as there is notable support there, just below the 62% secular retrace level.”
Why Manage Risk?
It is upsetting to see how many people maintained trust in the gold stocks because it is a sector that I believe suffers from way too much stagnant ideology and dogma. Also, I think the sector is supported by people who are generally good and have a sense of right and wrong. They are in a monetary revolution against corrupted and powerful entities after all.
But that is no reason to be a victim. The gold sector has fiery leaders who command from a pulpit on high, as they chronicle the evil-doing of the banksters, cabals, central planners and other nefarious entities. You will notice that I don’t use those terms except when trying to make a point that it never pays to be emotional in market management.
Your only real potential enemy in the market is yourself. You are not on a team with a “community” of others. Or if you are, you should not be. You should be thinking for yourself. The ‘other’ knows no more than you do, but if he thinks he does, then he is downright dangerous if you submit to him.
When the action becomes impulsive as it is now, never mind the targets. Watch the action. Right now the action in gold is startling, but it should not be surprising. When you invest in gold you understand that you are buying value and that you are committing to revolution against an entrenched system. What is revolution? It is war. People get killed in wars. They are trying to figuratively kill you if you are a gold bug.
I sit in 100% cash (outside of one stock market short position) looking forward to a buying opportunity that could be a big one. Yet still I feel uneasy because I know lots of people just wanted to set it (the ideology) and forget it. NFTRH even lost subscribers over the years who were gold bulls that did not want to hear the frequent updating/revising and the mental whipsaw it can induce.
‘Buy and hold’ is tough enough in the regular markets, but in this ground zero market to a monetary revolution, the intensity of the swings can be white hot. I sometimes put a disclaimer into the interim updates that people who do not want the mental whipsaw of short-term management should disregard such updates. But today’s events serve to tell me that more of this is required, not less. So what now? Day-to-day and week-to-week management in service to opportunity; that is what now.
Unfortunately, this is not your grandfather’s market. This is a market being ‘hands-on’ managed, massaged and outright violated by policy makers and their associates in the financial services industry and financial media. Gold especially is a monetary instrument that would shine a negative light on current policies. It is a digital and connected age, where anything is possible in the short-term.
That “anything” is now happening. This most recent and climactic destruction began with one simple little creep by the Gold Bugs Index out of a little bear flag. But the greater down trend began last November with a technical violation of an important support level.
In risk management, the smallest details matter. This market is a war and you avoid the bullets first. Then you win later. The only way to do that is through constant checking and rechecking of assumptions and data points. It is a lot of work, but if you don’t do the work you suffer the consequences.
Work is good. Lazy thinking is not. Do the work folks.