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Standing against the crowd
Posted on 05 February 2010
By Patrick Wood, Editor
As recently as early January 2010, the vast majority of investors and professionals were intensely bullish on the economy and the stock market. Gold & silver investors and traders were just as bullish on precious metals. Economists worldwide were claiming victory over the recession.
What went wrong?
Nothing. Whenever a strong consensus exists, you can always bet that the crowd will be wrong. It was wrong this time, and to the largest degree possible!
When you stand against the crowd and purposefully decline to “listen” to it, you have a decent chance to catch reality in its most sensitive moments… like when stocks, gold and silver roll over at the same time into a major bear market leg that could reap financial destruction for millions of Americans.
That’s why I write the Market Update at August Forecast — to help subscribers stay away from the crowd and out of harm’s way.
So that you can better understand my thinking, the following chart and associated footnotes annotate direct quotes from The August Forecast on the indicated dates leading up to the recent stock market crash.
Footnotes to chart:
1.12/16 - “Gold and silver have both peaked and experienced at least the first leg down in their anticipated bear market. The dollar has set a major bottom. Stocks are holding out, but are looking riper for a turn every day.”
2.12/18 — “With gold and the dollar changing major trends, you can bet that equities will soon follow suit. At this point, I would look to the first half of January to kick off Primary Wave 3… The stock market crash of 1973 – 1974 started in January 1973 and resulted in a loss of 45 percent in the DJIA. Nobody expected that one, either!”
3.12/20 — “Even though stocks are holding up, gold and silver are not, and the dollar is racing higher… This is a strong headwind to any further stock advance, and will eventually pull stocks off their perch.”
4.12/28 — “Since the metals and stocks have been tracking together for so long now, it is a glaring non-confirmation that stocks are at their highs while the metals are well off their highs and can make no further headway.”
5.12/30 — “With the dollar strong and metals weak, the stock market is on borrowed time. The entire topping process that started in early November has been slow, choppy and treacherous. Still, very little net upward progress has been made, indicating that the November call for a top was correct but did not take into account exactly when prices would start down in earnest.”
6.01/04 — “I still strongly suspect that that Primary Wave 2 up is either over or soon to be over.”
7.01/06 — “Gold has experienced a clear A-B-C corrective move off its December low of $1,074. The range of $1,150-$1,170 should contain this rally, and thereafter it should turn down again. A drop below $1,115 would indicate that the A-B-C is finished.”
8.01/08 — “There are other sociological signposts as to why equities are in a major topping process. First, India purchased 200 tons of gold in November 2009 from the IMF… I am quite sure that it was the dumbest thing they could have done.”
9.01/11 — “Are we on the verge of something like an 86 percent crash? I believe so, although it will take months to work off.”
10.01/15 — “If you have any long positions in stocks, bonds or commodities, get out. Now! Gold is on the cusp of beginning a third major wave down. Wave 2 up looks complete and prices are off the peak. Wave three down will be very volatile at times and prices could ultimately see $700 or lower.”
11.01/20 — “If the chart were of a heart getting ready for an attack, one might conclude that these shallow waves are like fibrillation. Yesterday and today were the last gasps for fresh blood and oxygen. Also confirming the worst for equities was gold’s breakdown below $1117. Wave 2 up is clearly over and wave 3 down has started. Look for wave 3 to carry below $1,000 over the next month or two.”
12.01/22 — “We are currently seeing the kickoff wave down in Primary Wave 3 and judging the intensity so far, you can get a sense of the ugliness to come.”
13.01/25 — “This dichotomy (between DJIA, S&P 500 and DJ Transports) sets up a possible non-confirmation scenario, which would be a warning sign of lower prices straight ahead.”
14.01/27 - “When this correction is over, it will be counted as wave 2 up and will be followed by wave three down, which will itself consist of five waves. Stocks, gold and the dollar could all be in third waves at the same time over the next month, making for some very dicey action.”
15.01/29 — “Stocks are significantly oversold but that does not automatically mean there is a big rally at hand. These conditions could persist for some time while prices continue to fall.”
16.02/01 — “When wave 2 up is complete, wave 3 down will commence, drawing prices below Friday’s lows. It will be a psychological blow when the DJIA falls below 10,000.”
17.02/03 - “Weakness in gold and silver, coupled with today’s sharp spike in the dollar, add pressure that stocks will resume their decline. The DJ Transports might already be leading the way down.”
18.02/04 — “Today’s action was typical (if exaggerated) for a kickoff of a third wave.”
Standing against the crowd is never easy. Peer pressure can be immense. Criticism can be intense. When it’s just you and your own thoughts, you can even doubt your own sanity.
Nevertheless, history is littered with examples of crowds being proven dead wrong and contrarians being proven exactly right.
When critics scoff at contrarians like me for being wrong 10 percent of the time, I can only reply, “It sure beats being right only 10 percent of the time.”
Would you like to join me?
[Note: The public is welcome to accept a free 30-day trial subscription to The August Forecast, which is posted three times per week on Monday, Wednesday and Friday. Ongoing subscription rates are ridiculously low at $69 per year or $39 for six months!]
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