Understanding Trends Change

This difference between goldbugs and stockbugs is really nothing. Both tend to view the world through rose colored glasses with blinders. They forget that ALL markets go both up and down and this is quite normal, not abnormal. A true global hedge fund manager must look at all asset classes, not just stocks or commodities. They must also view the world of currencies. We know that normal markets move in both directions even when there are long-term trends in motion. This is why we split a market into time frames from daily to yearly and project the trend on each level. This allows you to identify a “pop” within a bearish trend on a monthly level and at the same time distinguish between a broader bear market and a reaction.

Gold is an example. It has not elected any Yearly Bearish Reversals so it is not in a protracted bear market long-term, only a reaction measured in years. Yet on the monthly level, our model remains short. This is playing one time level against the next. However, this enables us to say 2011 will be a high with a maximum decline of 5 years, which is by no means a change in long-term trend.

When any group gets married to a vision of a market, that is when they get burned. All markets rise and fall constantly. They can be up and they can be down, while counter-trend moves lasting weeks or months and at times even years, and are the norm. For those who only look at one market, this concept may have been forgotten.

Currently, in stocks, the trend has been mostly higher the past 6 years, although we did have some short-term corrections counter-trend along the way. They assume this is the norm and forget that there can be wild swings even on a yearly basis. This is no different from the goldbugs who only expected gold to rise perpetually and its decline they chose to attribute to some sinister plot rather than market conditions.

Nothing but nothing moves only in one direction. The sooner you learn that lesson, the greater your chances of survival for the future.