Unfortunately the market threw a monkey wrench in that scenario with today’s weak close back below 1100 and the 10 DMA.

It’s going to take a darn good jobs number to create a 20 point gap. I’m not too sure that’s going to happen at this point but if it does I think the market is probably going to fade any move up to the 1120 level.

I was expecting something similar in the mining stocks. I did a post on the blog to that effect. I won’t bother repeating it here. You can just follow the link if you are interested. Either way if we get a close in the lower part of the trading range tomorrow we will be set up to form another weekly swing high and another opportunity for the intermediate correction we have been expecting to begin.

Yesterday I went over the extreme sentiment levels that are starting to pop up. Apparently no one is expecting any kind of significant correction. In December are you kidding? That is going to make it all the more damaging if it does happen because no one is prepared for it. And I must say that is exactly what we need to see in order for this bull to continue. A violent correction that scares the be jeepers out of everyone, especially in the gold market.

Now if this does unfold we all need to keep our heads about us. Remember sharp violent corrections occur in bull markets not bear. I suspect many of the bears will immediately assume the bear market is back if we drop 10-14% in 3-4 weeks. That’s to be expected as the bear only ended 7 months ago and it’s still fresh in our memory. Believe me we saw the exact same thing happen in `03. All the bears looking for a continuation of the down trend got slaughtered when the bull didn’t lay down and die quickly like they were expecting.

This bull will most likely be the same. This correction will have nothing to do with fundamentals. It will have nothing to do with the economy present or future. I guarantee the Fed is not going to withdraw liquidity, and let’s face it, that is the fundamental underpinnings of this bull. The correction will be nothing more than a bout of profit taking. But it will likely turn ugly enough to move sentiment back to bearish extremes and that is what we need to spawn the next leg up in the bull, both stock and commodity.

As a matter of fact I expect the correction will be misread by the powers that be as a sign that their stimulus wasn’t enough and they will start the money pumps again. They will be pumping at a time when that’s the last thing we need and that my friends will be the fuel that is going to power the next leg up in gold’s C-wave. A leg up that I expect will make this little rally look childish.

Gold:

I’ve got a couple of things to say about gold. First off we are starting to hear $1300 thrown around quite a bit right now. Now it is possible but I think unlikely we see $1300 during this phase of the C-wave. For one we are 21 weeks into this intermediate rally. That’s already the longest intermediate rally of the entire bull market. Second the quickest gold has ever been able to move through a 100 point segment is four weeks.

Even if gold could make it from $1200 to $1300 in record time, another 4 weeks would draw the rally out to 25 weeks. Seems pretty unlikely. It also seems pretty unlikely we are going to see gold jump another $90 in only a few days as it’s never happened yet. I’m sure during the final parabolic move of the secular bull we will see gold rally $100+ a day but not during this C-wave.

Now let me ask a question. How many of you are planning to buy on the correction when it comes? I dare say probably 100%. I can tell you from experience it is easy to plan on buying into a correction but tough to do in real life.

Here’s what is going to happen. You look at a chart and say to yourself, self, I’m going to back up the truck if gold ever makes it back down to $1050 again. And at the moment you probably mean it. Why? Because at the moment gold is still up and you’ve made a lot of money. You’re still feeling good about the gold sector.

But here’s what is going to happen in real time. If gold drops to $1050 the warm fuzzies are going to be replaced by a nauseous feeling in the pit of your stomach. You are going to feel like throwing up, especially if you rode the correction down. How many of us are going to be able to pull the trigger much less back up the truck at the same time they feel like puking?

That is of course the exact time you should be pulling the trigger, and I’ll tell you why. Because this C-wave is a long way from being over. The chances of this C-wave topping at $1200 or $1300 are slim. The size of the prior consolidation is way too large for a mere $200 to $300 to be the end of it. This thing needs to rally to $1500 plus before we can even think about a top, probably plus.

It’s going to be just as hard for people to enter at the bottom as it was to exit at the top. I expect I will take just as much flack on my next entry as I have with my recent exit. Probably more so since fear will be the emotion that’s in control not greed. You watch, I guarantee we will see posters on the blog enlightening us as to how gold was in a bubble and we are idiots for buying now that the bubble has burst. At the bottom of the correction we are going to hear the deflationists declaring victory. They will be wrong!

Short term indicators are neutral.

Gary

www.garyscommonsense.blogspot.com

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