A lot of Gold Bears

"The following current conditions are all part and parcel of a major bottom:

• extremely negative sentiment in both the metal and mining shares
• outflows of GLD and GDX at extreme levels - signs of capitulation
• sector breadth extremely oversold
• price oscillators extremely oversold
• CEF moved into a discount to net asset value, which indicates being oversold

That is all well and good but those conditions can continue. So, we were anxiously awaiting the release of gold's Commitment of Traders report and we were not disappointed. As the large Commercial Trader's short exposure declined (bullish for gold), hedge funds added a large number of shorts (also bullish for gold). This is a sign that the recent decline moved the largest traders to a less bearish outlook for gold while speculators became more bearish. Although this data is not a perfect timing tool, the shift is very important and is the hallmark of bottoms. This allows the above list to gain traction."

The important part is the comment on the speculators growing their short positions while the large Commercials were doing the opposite by reducing their shorts. As far as I can tell, the Large Speculator have not been this short since late 2008, which happens to be the last serious low before doubling in price over the next few years.

It seems a little late to be getting extremely short.

Anyway, my point is that if you want a reason for gold to continue to move higher without a retest of the lows, short covering would be the one. I often write about emotions - how do you think those shorts are feeling today? Do you think they are still confident in a profitable decline OR are they hoping for a decline to get out of some or all of their positions before the gold market moves much higher?

Speaking of emotions, the Gold Public Opinion data was released:

Blast for the past -Rick Santelli

The Siren's Song of the Unfinished Half-Cycle

If there is one fatal siren’s song of investing, it is the belief that an unfinished half of the market cycle will remain unfinished. A typical, run-of-the-mill market cycle runs about 5 years in duration (though with a significant amount of individual variation). The typical bull market portion extends about 3.75 years, on average, during which time stocks advance at an annual rate of about 28%. The typical bear market portion extends about 1.25 years, on average, during which time stocks decline at an annual rate also about 28%. Historically, that puts the typical bull market gain at about 152% from trough-to-peak, followed by a bear market decline about 34% from peak-to-trough, for a cumulative full-cycle total return of about 67% (roughly 10.7% annualized). Taking the arithmetic average of past bull market declines (a slightly different calculation), the typical bear market comes in closer to a 32% decline. In any event, notice that even a run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance.

To put some perspective of where the market stands at present, and why the siren’s song of the unfinished half-cycle is so dangerous here, the chart below presents the S&P 500 since 1998. Notice in particular that the apparent performance of the market is strikingly different depending on the “lookback” that investors use. The 10-year lookback and the 4-year lookback are particularly misleading because each captures an unfinished half-cycle; essentially a trough-to-peak market move. Such lookbacks are useful only on the assumption that the preceding bear market periods were entirely avoided, and that the next one will be avoided as well. Otherwise, lookbacks with less heroic assumptions (e.g. peak-to-peak across market cycles) are more reasonable. 

http://www.hussmanfunds.com/wmc/wmc130218.htm 

The chart above features two brackets. The first shows depicts a run-of-the-mill market decline of 32%, which is the historical average of how market cycles are completed. Such a decline would wipe out more than half of the recent bull market advance. The second bracket depicts a 39% bear market decline, which is the historical average for cyclical bear markets that take place within secular bear market periods.

Goldminer Bullish Percent. Is GDX close to a bottom yet?