This weekend, I’d like to take a slightly nostalgic trip down Memory Lane, into the dark, swirling menacing pool that was the dawn of the Internet. OK, that sentence didn’t end up quite where I meant it to.
When I started my newsletter business in October of 2000, I decided to have a little fun with it on this new thing called the World Wide Web, aka “the internet.” If you, like me, are of a certain age, you remember well that we started every web address with the ubiquitous www.
Message boards were all the rage back then. There were a few very popular bearish message boards, the best known of which was probably Bears’ Chat, run by the folks who ran a well-known bearish mutual fund. It was so well known that today I couldn’t even remember its name. I had to do some digging to find it, the Prudent Bear Fund. Back at the very bottom of the 2007-09 bear market, the owner of the fund sold it to a big mutual fund outfit. Talk about timing! That guy got out when the getting was good!
But I digress. At the time, in 2000, I thought it would be fun to run a bearish message board. And because I thought so highly of Wall Street, I thought it would be fun to base that board on a toilet humor theme. I was thinking of the Forbes magazine slogan, “The Capitalist Tool” when I named the board, Capitalstool.com.
The board grew. I was having fun with it. (By the time of the 2003 bottom, we had hundreds of regular posters and thousands of daily visitors. Those were good times for permabears.) We even were written up in Dow Jones Newswires, although we were a bit too cheeky to make it to the august and estimable pages of the Wall Street Journal itself. As far as I’m concerned most of what is published in the Journal is worthy of the toilet, but toilet humor apparently wasn’t worthy of the Journal.
And that’s as it should be. It was never my aim to make friends with the mainstream media.
Sadly, successive bull markets, especially the recent 9 year bull, decimated our posters and readers. Today, there are just a few faithful who continue to post at Capitalstool.com. Personally, I never lost faith that the day would come when the board would enjoy a resurgence. I suspect that the time is at hand for some of our old friends to come home.
Over the past 17 ½ years through Capitalstool.com I have had the extraordinary good fortune to observe some truly great traders go about their business as they freely shared their trades with us in real time.
One of the very best was one who went by the user name LeeWhee (no relation). He was a brilliant fellow who had made his fortune as a niche trade magazine publisher in the healthcare arena. When the Internet came along, he sold the business for millions and walked away, a truly prescient move. We know what the Internet did to the magazine publishing business.
Before His Heart Attack, “LeeWhee” Left Me This Golden Pearl of Wisdom…
LeeWhee was the best long term position trader I ever saw. He had a gift for reading long term charts. He used monthly bar charts that often went back 20-30 years. He would identify long term support and resistance levels and buy or sell when those levels were tested or broken. I saw him score one enormous move after another lasting months. He freely shared his charts, his entries and exits, and his thinking. He was a man of immense wisdom and calm good cheer (unlike yours truly). And so he was a great teacher.
Unfortunately he left us all too suddenly, felled by a massive heart attack soon after the market topped out in 2007. Before he died he left us with this pearl of wisdom that has stuck with me ever since.
“The more often support is tested, the weaker it becomes.”
He was referring to a support level price where buying repeatedly appeared to prevent a stock from breaking down. Ultimately, if sellers repeatedly drove the price of the stock down to that level, eventually the price would break down when the standing limit buy orders were all filled.
The opposite of that, which I have also observed to be true, is that the more often resistance is tested, the weaker it becomes. When buyers repeatedly push price up to a level where there’s a big bulge of limit sell orders, if those buyers persist long enough and often enough, eventually virtually all of those the sell orders will be filled, and the price will move higher.
Which brings me to gold. Gold has been trending up along a major support trendline since late 2015. I’ve been predisposed to be bullish on gold because 2014 looked like a major bottom and the uptrend has been holding. But gold has steadfastly been unable to crack resistance in the 1365-75 area. At the same time, it keeps falling back to support.
It has tested that 1365-75 resistance level repeatedly since 2014. There have been 4 attacks on the area lasting 7 months total. That absorbs a lot of sell orders.
Take a look at the chart below. It is obvious that gold is at a long term major trend inflection point. It must either break out through this major resistance level, or else the major secular uptrend will be broken.
Money Morning research director Matt Warder has showed us a potential trade recommendation that should be good for a playable rally in gold. And if that rally is strong enough and breaks through resistance it could lead to a major bull market upleg.
For all you gold bugs, learn how to get access to his recommendation right here.
Have a great weekend,