Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Bear Market Phase III

Commodities / Gold and Silver 2015 Jul 27, 2015 - 07:40 AM GMT

By: Submissions

Commodities

Plunger writes: Over 2 years ago I presented my first analysis of this precious metals bear market. After extensive study of the characteristics of past bear markets, I forecast a brutal bear market that would undergo three psychological stages. The third stage would be a wrenching decline that would ultimately reach levels so shocking that it would cause the destruction of the gold investment class. My analysis, which was dubbed Plunger's Flush, was met not just with skepticism but outright derision. I believe I know how Galileo felt.


Two years hence, this analysis has proven it's self. We have now entered into phase III of a bear market, where held at bay for four years the bear will now have its way with the Precious Metals. He will now perform his function of clearing out the accumulated malinvestment built up in the preceding 10 year bull market. At the time I presented my first analysis it was not polite to use the word "Bear Market" as consensus belief still regarded the bull to be active. The market was considered to be in a pullback in an ongoing bull market. Therefore my forecast of a crushing decline was met with universal skepticism and ridicule. Investor sentiment was not prepared to accept the reality that the sun had set on the bull market and a full course bear market lay ahead. My forecast was derived from my study of the process of development of bull and bear markets. I see little understanding of this area among the analysts who populate the gold market sector. Instead fervent believers of the gold narrative seem to dominate the landscape.

As a review, I recommend reading my academic study on major bear markets since these principles apply to our current bear market in the precious metals. http://goldtadise.com/?p=342366

Also, if you have not read my pieces defining the phases of a bear market I recommend viewing them here: http://goldtadise.com/?p=342331and http://goldtadise.com/?p=342347

Recent market developments provide full vindication of the bearish forecasts made over the past 2 years. I will now provide an update on the progress of this precious metals bear market and describe the model I use. Below is a big picture view of the past four years and how I have interpreted it.

The above chart depicts the major events which define this bear market. It has been classified into three psychological phases which are defined by the price action. After the phase I distribution top was completed in December 2011 the market entered into a prolonged phase II decline lasting another 2.5 years. Phase II developed in classic form, as once it completed the back test of the neck line of the phase I H&S it entered into a long slide. This slide ended with a sharp bear market rally (BMR) in the summer of 2012. This rally served to reinvigorate the bullish crowd and keep them believing that the bull market was still on and it had all been a corrective move. After the BMR exhausted itself the market entered into a prolonged phase II decline into the spring of 2013. I recall investor psychology at this time as being stressed, yet still optimistic that the bull would resume, the prevailing term used to describe it was " its a correction". This all ended with the Goldman raid on the gold market in April 2013. The 19 month slide had eroded investor sentiment to the point that they were now primed for a collective change of perception. With the crash, bullish hopes were now abandoned and it was recognized as a bear market. The classic point of recognition (POR) had arrived. The bear market process places the POR squarely in phase II....Always.

What occurs after the POR is a period of prolonged consolidation. A deceptive tug of war between bulls and bears ensues made up of several BMRs which serve to ultimately exhaust the bulls. Once this process runs its course, the market is now cleared to exit phase II and stocks can now fall of their own weight. This process of bull exhaustion took 18 months when it finally completed its post POR diamond consolidation in October 2014 and entered phase III. The 18 month diamond formation lasted such a long time likely because stubborn gold bulls refused to give up the dream of a bull market, instead expending their energy chasing apparent bear market bottoms. It is interesting to note that the ursa bear of 1932 and the Nikkei bear of 1991 both ended their post POR consolidations with a diamond formation.

After the diamond formation breakdown of October 2014 the market was now in phase III. By definition when a market breaks down out of its post POR consolidation it then enters phase III. Normally, a downward impulse drives the price to its ultimate bottom and the bear is then over. This bear however, was peculiar because instead of an immediate downward impulse the index chose to go into nesting mode for the next 7 months. During this interval it build out a deceptive H&S pattern just beneath the phase II diamond consolidation pattern. I suspect this was again caused by die hard gold bulls still clinging to hope that a bottom was being formed. Their error was not understanding that all phases of a bear market had not yet completed. In fact, phase III was just getting started and now the end game process is just kicking off. With the June break of the nesting H&S neckline, the phase III downward impulse has finally begun. We are now in the dreaded annihilation phase which I have described in previous essays. The annihilation comes from the markets "no one gets out alive" liquidation.

Over the past four years the bear has been restrained by stubborn bulls. Those bulls are now exhausted and the bear will now have his way with this market. The blind capital of the great unwashed will now be devoured. The bear will end when the worse that can happen has been discounted by the price structure. The junior and mid-tiers have long been destroyed, now the bear will focus on the big cap stocks, where the liquidity remains. Bulls will sell their good stocks held for a rainy day, because it's raining. It has been rather tragic watching the majority of PM analysts lead there followers to slaughter, because it has been unnecessary. What the majority of investors have not grasped is that a bear market is a process. A process that must progress through various stages of price action and investor psychology. This is what I have attempted to describe over the past two years.

There are several principles at play here. Once a declining market encounters a POR, you know a bear market is active and it's not just a correction. All calls for a bottom are now invalid until the market enters into an identifiable phase III. Bull signals are now only valid in a phase III. Once in phase III, the market will undergo a cathartic selling event and volume will then begin to recede on subsequent declines. Prior to this any attempt at a bottom will fail and prove to be false until this process completes. So now we wait and observe the bear do his destructive work. We will watch the language of the market to identify its ultimate bottom. Serious money is made identifying the probability of a bear market low, not by buying apparent bear market bottoms.

The bear has not yet finished his work, the ultimate bottom will prove to be so shocking that it will devastate a generation of old school gold bulls. But, it will allow the foundation for the next bull market in the precious metals. This will be my final essay devoted to the great precious metals bear market. We have fought the good fight, we have survived four years of decline, we have properly identified the trends and market phases. We have been wise enough to know when to step aside. We have arrived near the bottom with both emotional and physical capital intact. We will be there to deploy at the bottom. It is time for us to focus on the upcoming epic bull market that will soon unfold in the usual deceptive manner. Join me and other like minded PM Traders at Rambus Chartology for the ride.

Plunger
Goldtent TA Paradise

Risk Disclosure: This site has been prepared solely for information purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. The information presented in this site is for general information purposes only. Although every attempt has been made to assure accuracy, we assume no responsibility for errors or omissions. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. The information presented herein has not been designed to meet the rigorous standards set by the Commodity Futures Trading Commission for disclosure statements concerning the risks involved in trading futures or options on futures. That disclosure statement must be provided to you by your broker.

The materials in this site do not attempt to describe the risks to investors that may be associated with the way trading is conducted in any particular options market or in any market for an underlying or related interest. In the preparation of this site, every effort has been made to offer the most current, correct and clearly expressed information possible. Nonetheless, inadvertent errors can occur and applicable laws, rules, and regulations often change. Further, the information contained herein is intended to afford general guidelines on matters of interest, . Accordingly, the information in this site is not intended to serve as legal, accounting, or tax advice. Users are encouraged to consult with professional advisors for advice concerning specific matters before making any decision impacting on these matters.

This site disclaims any responsibility for losses incurred for market positions taken by members or readers in individual cases, or for any misunderstanding on the part of any users of this website. This site shall not be liable for any indirect incidental, special or consequential damages, and in no event will this site be held liable for any of the products or services offered through this website.

By accessing or otherwise using this website, you are deemed to have read, understood and accepted this disclaimer

Do Your Own Due Diligence

Copyright © 2015 Goldtent TA Paradise


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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