The "Golden" Bull Rested and Revived

My early years as a Broker and investor witnessed my attempt to master all aspects of this enormously complex and difficult field. I studied all the books I could find on individuals who had amassed great fortunes investing or trading for their own accounts. Some succeeded by trading commodity futures. Others reaped great rewards when dealing in stock options. While still others gained their wealth through day trading or short selling. However, after much study and research I finally discovered that most of them that achieved their ultimate goals were those individuals who identified a major Bull Market or an individual stock, and RODE it for all it was worth. They bought and held during both the pleasurable upswings as well as through the sharp, terrifying down drafts, when they accumulated more stock. Then, when the Bull Market appeared to be in its final, frothy stage, they gradually sold their holdings to the late comers who were clamoring to accommodate them. Most however held on to their positions and quite a few never sold -- and when they died everyone was surprised at how rich they had become.

Throughout my early years, I felt that if anybody could achieve great profits from trading currencies, stocks or bonds, then certainly I should easily be able to join their ranks. After all, I was bright and not only loved the markets but thoroughly immersed myself in learning all I could about trading. In fact, although it was early in my adult life, trading had become my primary occupation. How could I lose, I thought? There was nobody smarter than me!

During this period I spent many sleepless nights wondering if I had over-leveraged myself. I agonized if a correction was destined to deepen into a devastating Bear Market. I remember back in November and December 1974 pushing GM stock then yielding 8.5% to my clients while I was buying 100 Call options for myself convinced that we were at the end of the great Bear Market. I paid $1 each and sold them near their high at $10 several months later. What a rush! I reminisce about buying 100 silver futures contracts when silver was trading at about $5.00 an ounce. Then, just prior to its amazing run the locals briefly sold silver off to below $4.85. They took silver to $0.05 below my stop-loss level and stopped me out, for a $50,000 loss. I was so sure of myself that I had over leveraged, and my fear overcame my Greed and more importantly my Reason.. I was left in the dust licking my wounds as I watched silver move higher and higher second guessing myself if I should reacquire my position. I never did; As Silver soared to $52.50. Instead of making $25 million I had lost my nerve along with my $50,000 In the end, after trying for more than 20 years to trade with the pros, I lost most of my youthful naiveté but gained a lot of experience and wisdom.

I did an in depth review of both my successes and failures and the reasons for each of them. I especially concentrated on my losses. Slowly I came to realize and accept both my strengths and weaknesses. I finally admitted that I was an excellent analyst, but not a very good trader and never would be. Simply because I was and am not disciplined enough, plus I was always slightly ahead of my time -- and I developed the nick name Panasonic. While I had more than my share of very successful trades, my losses were also quite large and very painful. Furthermore, the agony that I often went through when a trade was going against me became more and more difficult to endure. I just could not accept that I could be wrong. On the other hand, I recognized that I had a great ability to perceive the emergence of a nascent Bull and or Bear Market. I realized that the times when I acted upon these correct observations, and bought and held my positions through the unfolding zigs and zags, were the times that I most prospered. In the case of the silver trade described above I was correct on the trend, but I allowed myself to be tricked out of my contracts by my greed which begat fear and complete lack of self control. I could have reinstated my positions at any time but I was frightened that once doing so, silver would again move lower and nail me with further losses. Scaling in never occurred to me. Unfortunately, this is all too often the result when competent investors succumb to greed and are seduced by the lust to over-trade Of course I did not immediately refrain from my trading proclivity! While intellectually I recognized that it was a mistake, emotionally, I continued to believe that I should be able to trade with the best. However, such interludes became increasingly less frequent. I was beginning to learn to protect myself from myself!!

It is one thing to make a fortune trading, but it is another to consistently do so. It takes a certain type of individual which I eventually admitted I was not disciplined enough -- and although at times I had nerves of steel, usually it was at the wrong times.

There are very few people who have that required combination of these traits and abilities! Still fewer can successfully put them to use as a trader for them selves. In general a trader or broker, who like a lawyer or a doctor, that manages his own account, has a fool for a client.

I am here to WARN you that the odds are heavily stacked against anyone who thinks they can successfully TRADE this gold Bull Market! Furthermore, the price that one must normally pay in sleepless nights and possibly damage to one's health, not to mention financial losses, are typical attending elements that are part and parcel with a life of trading.

This brings me to the subject of gold. As long-term readers know I am convinced that we are in a long-term secular Bull Market that began at $255 in 2001. Furthermore, I believe that we are presently still early in what in my opinion will be the largest of all Gold Bull Markets. Additionally, given the various reasons for the emergence of gold's Bull Market, and the sequence of events that have transpired since its birth, I am confident that the Bull Market will not end for several years, at a minimum.

TRADERS vs INVESTORS

Should you be a trader or a long-term Investor? Good question. How many of you that got into the gold market made a ton of money trading it from its $35 low in 1973 to its 1976 high of $200 had any profit left over when it suddenly dropped back to $100 in 1977? I'm willing to bet that not one of you got back in when gold soared passed $200 or passed $300 or $500 by the Fall of 1979 ? BUT most everyone was jumping in as gold gapped up as much as $30 a day into its ultimate high of $850+ into December 1979.. Instead of reaping fortunes most traders ended up in the hole, while those slow dumb investors who just grabbed on to the Bull and hung on became very rich.

The same held true for silver but with one Difference.

In the case of Futures contracts a person is not only liable for his committed margin funds, but also for all losses that may occur while he holds the contract. In early 1980, the rules regarding silver were changed by the COMEX. Silver had run from about $15 to over $50 in the space of only several months. When silver passed $50 the COMEX officials first mandated that the margin requirements were raised to 100%, when that did not slow the market to their satisfaction they mandated that the exchange would only accept liquidation orders. This forced the longs to sell as no new long buy orders could be entered. The result of this rule change was that silver plummeted! It went limit down for a number of weeks on end before it again resumed trading in the mid-$30 range. The longs, who earlier had amassed substantial profits, were then faced with staggering losses as they could not exit their trades. They were locked in! Each contract consisted of 5,000 ounces of silver. Thus, when silver fell from over $50 to below $40, the losses amounted to over $50,000 per contract. Numerous individuals went bankrupt overnight. Will it ever happen again? You bet your life it will. It happened in sugar in the 70's, lumber in the 80's and most recently in Natural gas and was in reality the prime cause for Enron going bankrupt. However, when trading futures, recognize that one's losses are not limited to their margin requirements.

There is nothing worse than being right and ending up broke.

The case for today is buying and holding gold bullion and gold equities, is primarily that you have the actions of their Bull Markets working in your favor. Yes, you will miss the excitement of trading, but you will also miss the loss of countless hours of sleep! True, you will experience periodic sharp reversals and breathtaking declines but these are buying opportunities and you must recognize them for what they are. WE are indeed in the BIGGEST of all Gold Bull Market…and your asset base will inevitably work higher.

What you must remember from this narrative is that we are operating in a confirmed Long-Term Bull Market that over time will bestow great profits upon the true investor. The primary negative of trading this Bull Market is that the typical investor will too often find themselves having taken a small profit, and be out of position when the next major up-wave develops. And you will not have the discipline to get back in at higher prices.

During the great gold Bull Market of the 1970's, gold suffered a major secondary correction. This lasted from January 1, 1975 until July 4, 1976. During this period gold plummeted from $200 to $103 an ounce. Gold then surged to over $850 an ounce by December 1979. Consequently, when the U.S. government announced on January 1, 1980 that Americans would once again be allowed to own gold bullion, all the investors that got in below $500 knew that the ball game was all over. On that fateful day, everyone who believed that a great influx of buying would result from the lifting of sanctions, were sadly mistaken. Rather than exploding higher, the last buyer had already spent his last dollar. The end result was a harrowing and trying TWENTY-YEAR BEAR MARKET.

In this as in every Bull Market there will be at least one such periodic, major price collapse. I can strongly recommend that if you sense that gold is encountering such a period, or that an external shock occurs that might precipitate such an event, do not eliminate your positions. You can buy Puts to protect yourself -- and in the case of a given gold equity, if the fortunes for that company negatively changes, it is best to look for a re-placement to switch into but do not reduce your positions. Returning to buying and holding during a Bull Market the primary negatives are two-fold. First, is that it is boring! You will miss the excitement of trading! The second is that you risk being shaken out of the market during the inevitable sharp declines. But it is these declines that give you the opportunity to add to your positions. (WE just finished 4 months of opportunity to accumulate).

I feel very strongly that all but the most sophisticated traders should ride them out. There is a common thread that appears during all Bull Markets. Many new traders are whipsawed out of their trading positions when gold drops sharply below support only to recover to near unchanged. Under these circumstances it can be quite difficult to reenter the trade. Often, as in the case of my earlier discussed silver Futures experience, you will not have the courage to again make purchases before gold moves ever higher. This will force you to miss out on the profits that would have accrued if you had remained invested. Bull Markets have a tendency to move higher while carrying as few investors with them as possible. Gold Bull Markets are no different! If you allow yourself to be faked out of your position, by trying to be cute and trade the market prior to a major gold advance, it is not gold's fault if you miss the rise, it is yours! Just as in the bull market for stocks all through the90's buying the dips and holding on was the way to make the most money.

So Just like riding a Brahma Bull, grab hold of your positions and hang on for dear life and make sure that, that Golden Bull doesn't buck you off.

the GOLDEN BULL IS ABOUT TO TAKE-OFF…AGAIN

With the tremendous amount of BS and propaganda that one is hit with day in and day out, it must be very difficult for the average investor to know whom to listen to. The best advice I can give you is to check on their respective track records and determine for yourself, using your God given common sense, which ones seem to know what they are talking about and which ones have an agenda of their own, but then again make sure you check their track record and then follow the ones that have earned your respect and confidence. (Don't be lazy…CHECK !)

ELLIOTT-WAVE REVISITED

If you will recall (go back and check) I have been calling Gold Bullion's move from $255 to $725 a completed perfect Elliott Wave five wave move with a fifth wave extension; which in itself also contained a fifth wave extension. The Beauty of Elliot Wave is that it contains some very definite rules and one of the most consistent rules is that Fifth Wave extensions will always pull back to the beginning of their extension (wave II): In today's case that is $550 and are always doubly retraced, (goes back to retest $725) either as a wave B of a large ABC flat correction or as Wave 1 of the next Impulse wave of larger degree. In Plain English, what all that means is that if my assessment is correct the market would correct back to $550 and then go back up and retest $725 which either marked the end of the entire gold bull market or which, as I am firmly convinced was only the end of Wave I of the on going major Gold BULL Market.

Where to Now

Another hard and fast rule for Elliott-Wave is that Third waves are never the shortest of their three impulse waves and are usually related to Wave I by the Fibonacci ratio of 1.61. That means the coming complete Wave III move will go up a minimum of $470 ($725 - $255), or a most likely $756 ($470 X 1.61)…..which is an initial target of $560 + $756 = $1296. Now with most conventional technical analysts having called for an end to the five month correction with a break out last week, it sure looks like us so-called Gold Bugs are in for some good times.

Please Note: that when it comes to the stock markets as a whole, not only is the USA but most markets all over the world are now in the END TIMES. The markets are now living in that BORROWED Time Zone that I have been calling for over the last 6 months or so. If you will recall, although I have been Bearish for almost two years now I have been calling for the Market to break out to new all time highs in order to generate that GIANT hook which is necessary before the biggest CRASH since the 1930's can begin. The only remaining hook left is sentiment. Sentiment is all together too BEARISH to have marked the final top. So be careful; any sell-off starting from here is most likely not that final top there is a good chance that we will get at least one more attempt at making another new high. BUT we are in very dangerous territory, liquidate your long (common stock) positions NOW, and keep your powder dry and wait for the sentiment figures to give you that all clear signal before attempting to go short to any major degree.

Of course you can just load up on Gold and Silver and their respective stocks and not worry.

GOOD LUCK AND GOD BLESS

Aubie Baltin CFA, CTA, CFP, Phd. (retired)
Palm Beach Gardens, FL
[email protected]
561-840-9767

November 6, 2006

DISCLAIMER
The above is my personal opinion, and in no way be deemed investment advice to buy or sell anything. It is submitted purely for informational purposes, based upon my understanding of the markets.