How Markets Outwit You

Strange. Most investors I talk to think the world is doing just fine. They say the U.S. economy is growing and the gains in employment have been nothing short of spectacular.

They say Europe is not collapsing as so many experts have feared. And that Mario Draghi’s pedal-to-the-metal euro printing is working.

They even claim Britain is doing fine, France will escape its troubles and inflation is coming back.

About the only part of the world they’re negative on is China, claiming that if there’s one single threat to global growth, it’s the Middle Kingdom and nothing else.

Well, I’ve got news for them. This is precisely what the markets want you to believe. They have an uncanny way of first separating you from your money, then washing it all down the drain.

When the markets are acting like this, making almost everyone feel everything is just dandy, or will turn out dandy — risk levels are actually at their highest. Investors are lulled to sleep. They’re complacent. They’ve dropped their guard.

And the next thing that happens? Those investors lose their money, big time.

Look. Markets do not change their major trends all that often. At most, a market may change its major trend once every three years. More commonly, they change trends every five years. And even that is rare. Most major trends persist for at least seven years.

Instead, what happens is this. You get a major trend unfolding on cue, with its cycles. Then you get a pause, a sideways consolidation period, often wrought with pullbacks.

The money that is made during the trending part of the move is often given back during the non-trending, sideways portion. Especially by trigger-happy, impatient investors and traders.

It seems they just can’t stand the fact that all markets need to occasionally take a breather. That all markets need to shake out the earlier investors — so new investors can come in. Or so short-sellers can take profits and cover their positions (in bull markets).



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Markets are, yes, living, breathing beasts whose main function is to outwit you. And one of the ways markets do that is to stage what seem like long, sideways periods of tight trading ranges and pullbacks — or rallies in bear markets — that frustrate the heck out of you and force you into making mistakes at the worst possible times — just before the major trends come back to the forefront.

As they are right now. For instance …

A. There is no evidence whatsoever that gold is going to blast off now to $1,400 and higher, as so many pundits would have you believe.

Simply look at my latest neural net forecast model for gold and you’ll see what I mean.

Yes, gold is rallying in the very short term. But the rally is merely short-term noise in the market, designed to throw you off course.

The major intermediate-term trend is lower, into late May. And then the major long-term trend will re-emerge, which is a bull market, and the next leg higher.

So what should you be doing now in gold? You should be looking to buy the decline into May, or if you’re a speculator, you should be shorting gold, looking to make some money as gold slides into a late May cycle low.

Could this model be wrong? Sure it could. But everything I monitor, not just my neural net models, also tells me that gold must pullback — probably to below $1,200 — before the next bull leg higher unfolds.

Ditto for silver, platinum, palladium and for mining shares.

So if you want to be part of the majority that will get eaten up by gold trying to trap you on the wrong side of the market with its meager, very short-term rallies like we’re seeing right now, be my guest: I’ll sell you all the gold you want.

B. Then there’s the dollar right now, another perfect example of a fake-out move that’s going to hurt a lot of analysts, traders and investors. Its recent decline has many of them convinced the dollar is dying again and that other currencies, especially the Japanese yen, are rising to be king of the mountain.



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All because the dollar has staged a minor pullback!

You can see it here on this chart I have for you. Actually, it’s a bit of a test, for you to see how much perspective has to do with things.

Most pundits are looking at the decline in the dollar on the extreme right side of this chart.

They see the decline and they shout from the rooftops “The dollar is dead. The dollar is going over an abyss. Death to the dollar!”

And then they come up with all kinds of conspiracy arguments and ridiculous fundamental explanations why the dollar must collapse (and along with it, the USA).

But now, you tell me. Look at the dollar since August 2011 and what do you see? A rather strong, steady uptrend that broke through the top of an uptrend channel in October 2015 …

Then consolidated near the highs with some swings back and forth … and is now merely pulling back to re-test the upper support line of a rising trend channel.

Sorry all you dollar bashers: My 5-year-old son can interpret this chart better than you can.



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Now let’s take the analysis a few giant steps forward and run my AI neural net on the dollar, calculating billions of price data points to discern hidden cycles and make a high probability forecast into the future.

Here is the chart. And what does it tell you?

That the dollar is on the cusp of a new, and powerful leg higher, one that could start any day.

That’s just two markets that serve my point: Markets are never what they seem they are, not on the surface. And if you let those surface impressions fool you, not only will you most likely lose treasure troves of money …

You’ll miss out on the really big moves when they do come.

Best wishes,

Larry

P.S. To help you get ready to take full advantage of the bull market of a lifetime, I want to send you a complete Dow 31,000 Preparedness Kit — five distinct free reports! The first free report spells out step-by-step what you must do now to position yourself for amazing profits (and protection) over the next two years. Click here to download now!

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 27

Art April 13, 2016

Larry, what about oil's direction? Correction back to mid 20's ??

Stephen Ettinger April 13, 2016

Larry, Gold and now especially Silver are taking off in terms of their valuations per oz. I have been following you, and your trends for several years now. No question, I got burned by not taking some of your advice, and got crushed with some commodity based metal stocks. Now I sit, dollar cost average, and hope that what I am holding does not get vaporized but turns around. My question to you is: Do we continue to wait patiently for your predictable drop in the gold and silver valuations? - OR HAVE WE HIT BOTTOM, AND THIS IS THE BEGINNING of a slow progression of a rise that will continue till gold hits 4 to 4 to 5K and silver quite possibly hits $100-$150.00/ oz? If we don't buy now, we could lose this bottom, or is this just a false positive? We read, we interpret, we learn, and we thank you for your insights. SS ETTINGER.

anthony g April 13, 2016

Patients is a true great physician.

Amceey April 13, 2016

Patient Stephen, it pays. Larry is right. It will pullback very soon. The question is, to what extend the pullback goes? 1100 or 700 levels? Today’s market is very very unusual. Larry is excellence in reading the trend. He deserves an A to A+. However, to identify the highs or lows I can only consider him in the B minus. Cash is king now, save your ammunition and wait for the time to come.

John S. April 13, 2016

I learned quite a while ago that this is only for comments - DO NOT for a second expect to get a response let alone an answer to a question from Larry on this site. I have my doubts that he even reads these comments. Larry as do many financial writers will get directional calls correct but is absolutely terrible with his timing. I will give him credit for his call on oil prices as well as FCX ( even though he was less than $,15 from being stopped out ). FCX continues to perform amazingly. But so far the euro and uvxy calls cost us too much money.

Harvey Hathaway, M.D. April 13, 2016

As a new subsciber I look forward to your recommendations. In this current column I wish that in addition to gold and the dollar you had addressed the current equity rally. Is this a bear trap ( "market outwitting") or the beginning of your predicted run to 31,000? I believe that recently you were predicting a sharp decline which has not materialized yet.

cindy April 13, 2016

Sorry dudes the bear market in commodities is only 5 years in. And those usually last 20. Other than 2-3 month rallies the downtrend will continue for years to come

UDO April 13, 2016

cindy , let's meet again in 2020 , shall we ?

Aidna April 13, 2016

Love it

Karin April 13, 2016

Hi there Larry! Say "hello" to your son from me, and thanks again for sharing your views. I'll keep following. Some of my classmates in (the Swedish equivalent of) highschool understood the markets. (They are rich now, by the way) I never did. I don't think I do now either, but it's interesting to try. And I've taken a liking to technical analysis. Best wishes, Karin

anthony g April 13, 2016

Larry I do hope that you are correct. I know that you and Martin Armstrong are forecasters with similar views. He also sees a pull back in gold before the bull market returns.

Scott April 13, 2016

If the US$ gains strength, won't that make things like gold and oil relatively cheaper?

james w April 13, 2016

Excellent Larry Markets move?... UP DOWN And for the kicker... sideways and most people do not make the correlations between Economics, market conditions and portfolio performance Thanks very much Sincerely James W. St. Louis, MO

Jason Vor April 13, 2016

Larry are you still targeting a low in the DOW of 14k? It appear to want to make new highs instead Also, as far a gold goes, since Bernanke was successful with QE, Europe has been using the same model - this makes safety hedges like gold not so appealing anymore - what resistance does gold need to break to consider is no longer in an interim bull market?

Malcolm April 13, 2016

Good question Stephen . Why would another pullback be the start of a new gold bull ?. Why was the last pullback before this rise not the start of a new bull ? I read ,elsewhere , a rise of over $16 in silver would be a signal of a new bull market , so as it has ,why is that wrong ? Let's hope Larry replies Stephen

Ted F April 13, 2016

Only so much play money can be put in circulation, then it becomes worthless. Look at Germany in the late 1920's early 30's. A country can only be loaded down with so much foreign debt, look a the Weimar Republic circa 1920's, Greece circa today. The White Plan for Weimar's debt only added more debt during a restructuring and virtually made the Hitler War certain. At least Harry Truman resisted calls for WWII reparations, and restructured Europe's war debt down considerably, let them start the post-war period with a clean slate. At some point it is likely Europe will have to follow the lead of the dumb suit salesman from Independence and do a radical restructure and write off of European debt. And China is going through the same constriction of their economy that they helped fuel in this country. Isn't it amazing how things go in circles?

Bob April 13, 2016

You called for copper and oil to bottom in March. Are we in a leg up on those commodities, or do we need to go lower, like your gold call, before we get a true rebound.

quickresponse April 13, 2016

Well researched, accurate and informative article. Indeed, the US dollar will be moving up (projected up to 20% gain against major currencies). Also, I do not recommend investing in Gold until it reaches $800 an ounce. I've been investing in the stock market since I was 19 years old. As a senior, I can assure the readers that your insights in this article are Bull's Eye! Keep up the good work Larry.

Mark April 13, 2016

Hey Larry, back in early March you suggested that a drop in gold to 1100 was likely, then later you said 1180, now 1200. Is your neural net forecast changing that dramatically in just one months time? Shorting a $50 predicted decline seems to be a waste of time considering the risk.

anthony g April 13, 2016

are we still expecting a pull back in the dow. the train is leaving the station after running over the bears

Tom April 13, 2016

Hi Larry: I have followed your work for the last several years and have been quite happy with your overall analysis. In following silver more closely than Gold/Platinum I am somewhat disappointed that you sparingly include highs/lows for sliver when you provide analysis for gold. Is it possible to include silver more often? I would like to know if you feel silver will go back below $15/$14 level during the coming correction or? Thanks much, I am a loyal follower.

David April 13, 2016

Wow...Neural net...giving a fancy name to your investing system gives it more credibility!! I suggested GPL,at 46 cents and in a month its 1.16!!!!Your clients don't want that miner(pun intended) move....GPL is Great Panther Silver...Taking 10k to 14k in 4 to 6 weeks is tiny????????? Dollar cost average in quality miners and AU/AG!!!!When if AG goes to 12 the premiums charged for physical offset the lower commodity price...Better to be in then hoping to get in.

Gerald H. April 13, 2016

Hi Larry, You admitted you missed the bottom for Gold at $1050, But you said we will see new lows for miners by June. Many Miners and Juniors are at 52 week Highs, So if Gold is only going down by $50-$60 from here. How can Miners go down 50%-75% or more from where they are now. Could you please keep us Super Cycle Members up to date w/ your new Cycles? Thank you.

April 13, 2016

gold bulls beget stock bears. so, in essence larry, you're also calling a stock bear starting in may?

Peter April 13, 2016

Larry, Like you I live in Thai. The reason gold and silver will fall is , as you very well know, the constant shorting on the Comex by the large commercial players. It is a scam, probably illegal and certainly immoral. To think that Miners in third world countries are dying because of lack of safety standards (caused by razor thin margins) while fat cats on Wall St live in luxury, Makes me puke !!!

The30WeekMA April 14, 2016

It appears that gold has been declining through time not price (consolidating)

April 15, 2016

it's been declining at the exactly the opposite of the s&p.