Can investors and traders use sentiment to spot turning
points in financial markets?
Let's use media headlines from 2011 to chronicle the "Great Gold
Rush" from bubble to crash.
ABC News: Gold Rush also A Boon for the Refinery Biz - August 10
Bloomberg: Gold Exceeds $1,800 as Investors Seek to Hold the
'Ultimate Collateral' - August 10
Forbes: Jim Rogers Says Gold Going Higher - August 10
Forbes: Gold at $1,870 is Being Seen as a Haven - August 22
TheStreet.com: Wait to Buy Gold at a Pull Back - August 22
Beacon Equity Research: Gold Price Poised to go Parabolic - August
MoneyControl.com: Gold in Portfolio is Mandatory - August 22
Barron's: Is $5,000/ounce the New Target in Gold's Run? - August 22
Chicago Times: The Gold Rush is On Again - August 26
BusinessWeek: Gold Not in a Bubble as Central Banks Print Cash,
Marc Faber - September 6
Reuters: Hard Hit Gold Bulls Not Yet Out For The Count - September
It's worth mentioning, that gold prices topped at $1,917 in
August 2011 around the same time the SPDR Gold Shares ETF
(NYSEARCA:GLD) became the largest ETF with $77.9 billion in assets.
(See chart below)
How Gold Experts are Misleading the Public
At that time, just as today, the reasons for gold to rally and
continue rallying were seemingly endless:
Gold is a protection against inflation
Gold is also a protection against deflation
Gold is a safe haven during stock market meltdowns
Gold also rallies when stocks rally
Central banks are buying gold, so should mom and pop
Gold is the only real collateral in a QE world
Despite all the bullish rationale for higher gold prices, there
were even more compelling reasons to ignore the hype.
In our Weekly ETF Pick from Feb. 14, 2013 we wrote:
"Despite a modestly rising stock market, the Market Vectors
Gold Miners (NYSEARCA:GDX) has lagged both the broader U.S. stock
market along with the SPDR Gold Shares (
) by a very significant margin. At present, GDX trades around
$41.50 and is well below both its 50 and 200 day moving average.
Buy the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST)
at these levels. A double digit slide for gold would likely
translate into a 20%+ loss in mining stocks. This scenario offers
some big upside potential for bears."
We exited our Feb.14 DUST trade with a +29% gain and in that
same report, we told our subscribers to buy JUN 40 GDX put options
at $190. In early June, we sold the GDX put options for a +525%
gain at $1,200 per contract.
Let's examine two more time stamped examples of how we used
excessive gold bullishness to our advantage:
from Aug. 1, 2013 we wrote:
"Since hitting a temporary bottom on June 26, Gold Mining
Stocks (NYSEARCA:GDX) have staged a fierce 21.78% rally. Is the
worst over? To the contrary, this is just the sort of counter
trend bounce you'd expect from a dead fish that has fallen off a
2,000 foot skyscraper. Buy the Direxion Daily Gold Miners Bear 3x
Shares (NYSEARCA:DUST) around $74-75. DUST aims for triple
opposite daily performance to mining stocks."
Per our 8/6/13 intraday email alert to subscribers, we sold the
remaining half of DUST at $102 and we bagged a blended 23.5%
one-week gain. It was a tremendous trade!
Almost one month later, rumors of a U.S. strike against Syria
once again pushed short-term gold sentiment into bubbleland. And we
In our Weekly ETF Pick from Sept. 4, 2013 we wrote:
"Gold bullishness among polled analysts by Bloomberg is now
at its highest level since March 8. This time around,
expectations for soaring gold prices on a Syria attack is the
consensus view. However, not only is the crowd's opinion usually
wrong, but the most important bullish underpinning for gold is in
the midst of going away; namely scaled back Treasury bond
purchases or "QE" by the Federal Reserve. Buy GLD OCT 2013 130
put options (GLD131019P00130000) around $230 per contract"
Per our 9/12/13 intraday alert, we sold our GLD OCT 130 put
options for a 63% one-week gain and our tandem trade in the
ProShares UltraShort Gold (NYSEARCA:GLL) is already ahead by almost
9% from our purchase price.
A Capiluation Moment
The true sign of a market bottom in any asset - gold included - is
capitulation selling, much like what the Bible describes in Ezekiel
Clearly, sentiment extremes (both bullish and bearish) are
opportune times to capitalize. And if we combine sentiment measures
with other confirming signals, we increase the probabilities of
being right and making money. On the other hand, aimlessly
buying precious metals at whatever price or on the dips or based
upon expert opinions is a broken strategy.
Profit Strategy Newsletter
uses a combination of market sentiment, fundamental/technical
analysis and common sense to be on the right side of the market.
Since the beginning of the year, 78% of our time stamped ETF picks
have turned a profit. (through 6/30/13)
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