Saturday, September 3, 2011
The importance of pullbacks
First, some sarcasm.
Here is a graphical depiction of gold's action over the past month or so.
Remember? It broke its upward channel. It "went parabolic". "Parabolic", from a linguistic perspective, is a backhanded compliment - sort of like an Englishman saying "well, that's an interesting idea". "Parabolic" means gold was in a "bubble".
So, everyone in the MSM started saying "blah blah bubble blah blah gold blah blah bubble".
Then you had a couple days where gold collapsed over 5% a day.
So the MSM switched to saying "WE TOLD YOU SO NYAH NYAH". They were obviously proven right, gold was teh bubble after all, and it was now only a matter of time before it crashed back down to $300 as the glut of shitty Sacajawea coins from disconsolate ex-survivalists hit the market. Soon ZeroHedge would be an empty wasteland. Like LiveJournal.
Then what happened?
(I apologize for using Otto's trademarked Senor Owly, but we just don't see enough of him. I'm pretty sure that Otto's also has maracas, anyway. I prefer the one with maracas, but couldn't find it on Google.)
Apparently, now gold has pretty much gained back everything it had lost. Now it's returned to nearly the same upward slope as it was on before, when it was "parabolic" and "the last stages of a bubble".
But this little correction produces an important psychological change in the market. The old "gold parabolic bubble neener neener" narrative has been slightly discredited now. The little week-long gold headfake has made people more likely to believe that gold could revisit $1900, instead of $1200. Or even go higher.
Take shit away from people and you make them pay attention. Once they are paying attention, they start to fixate. That's recency effect. The concept of $300 gold loses just a little weight, while $1900 gold gains weight, in our little mental calculation of possible ultimate price targets.
If we soon see gold miners getting revalued for $1900 gold, instead of the $1200 gold that people like Tom Lydon say is normal for analysts, it might be because of this little August price action. After all, the bearish narrative has lost some face, while the bullish narrative has been reinforced.
As for the top-callers? That is, if you can still find any of them?