From the Archives, Understanding Accumulation: The Single Most Important Tool for Trading Markets – Gold, Stocks, Bond Yields

From Nov 2017, I was once again laid out my long-term very bullish view of gold and the stock market, and my extremely bearish view of the bond market. You be the judge how well that worked out as stocks and gold are much higher and the prices of bonds are much lower. Accumulation is wildly important to understand –

From 11/2017 –

Since 12/9/2015, with all of the total useless noise written and said about gold (and bonds) I have never wavered in my belief about gold beginning a new secular bull market. And bonds being in the biggest distribution I’ve ever seen. You want to listen and read (and believe) all of the noise out there, that’s your choice.

Let’s take a look back:

Accumulation (plus re-accumulation) is the single most important tool and the single most important force in analyzing markets for a long-side trader or investor. There is nothing close. One hugely confusing part of it is when we mix up our time-frames. There is something else which most everybody involved in markets confuses. There are timing tools only and there are timing tools plus analytical tools – and there is accumulation. Accumulation is not a timing tool. It is an analytical tool only. It took me years to work thru all of these things in my thick head. Again, for the massive enormous amount of thinking which is almost ubiquitous in markets – it is usually a complete waste of time and completely off-focus. How do I know? I did it. But then my energy early on went into trying to understand why there were guys around me on the trading floor who were constantly nailing traded after trade, seemingly every day. And why I was doing the exact opposite. I was obsessed to “get there”. And for some reason in my head, I just knew there was something incredibly special about accumulation. That’s where all of my “overthinking” everything went. And supp/res, the trend, etc. was also where my over-thinking went. Thank goodness. But I eventually understood that trading is trading, and don’t overthink things. And my job as a floor trader was to be able to literally pay my business fees and my bills. Just trade. If there isn’t a lot of accumulation, but a stock/market is very active and/or has tremendous momentum (either direction) then trade – i.e. pure support/resistance. The market doesn’t care about my “system”. I learned how to adapt.

So what defines an accumulation area? My own definition is here.

It’s the accumulation and the distribution which truly sets up markets and allows for the trend to take over in markets – it’s what sets up the trends. (We’ll focus on the accumulation, but it’s generally the same idea for distribution. And these accumulation areas can help us on any time frames, we just have to make some adjustments, certainly with exiting strategies.) QE, Trump, “real” interest rates, rising rates, falling rates, Korea, etc. is all noise. That stuff is all part of the trend, which is only set up by the accumulation. Ignore the other crap, except in a contrary way. That’s the stupid stuff which people use an excuse to buy, buy, buy (always, always at the wrong place, especially by the gold permabulls).

From March 31, 2017: If QE were such a great “reason” for markets to go up, then why in the world would this chart look like it does. The arrow is where Helicopter Bernanke started QE. The QE was directly aimed at the bond market. Yet not only did that experiment in lunacy not cause bond yields (inverse of bond prices) to plummet, bond yields actually soared. But shouldn’t all of that new high-powered money directed at bonds have caused yields to plummet? That’s what the “theory” would have us believe. Yet yields have instead traded in a big range for the last 8+ years. So QE is not a driver of the trend yet. It’s being used as an “excuse”, basically for the huge turnover in capital – long term “smart money” getting out, long term “dumb money” (like CBs) buying. But QE and its aftermaths will be a driver of the explosion higher in yields – the setup (the distribution). While bonds are actually bullish intermediate term (on March 31, 2017), that market is an absolute nightmare long term. If it were a stock chart, it would be incredibly bullish. In fact, here is an incredibly bullish chart long term. Gold is in a major accumulation area, just like bond yields are. And if you’re super bearish on bonds, you should be buying gold – on the next selloff. It’s the huge accumulation area which will drive gold much higher. Just like it’s the huge accumulation area in the stock market from June 2001-November 2011 which has set up this beauty of a bull market. It’s why I’ve been consistent for years in my complete disagreement about a stock market bubble/crash scenario, thus the huge selloffs will be awesome buying opportunities. The stock market can be a fabulous place to build some wealth (and also destroy it).

These areas are where there is a big change in the ownership of a stock or market. But it’s the power of these areas which is so important to understand. At the risk of sounding like a preacher, we must believe – seriously – in accumulation. It can really keep us grounded when all of the mayhem breaks out. For example, last Fall I laid out my road map for gold, in several posts, that we would have a major retest in late 2016, but at a much higher low. That retest was for the December 17, 2015 secular low, when I believed it was time to buy miners. But in the Fall of 2016, in the heat of the selling wave after selling wave, of course even the die hard bulls were giving up. The reason I stayed firm in my beliefs of the selling waves being a “normal” retest, is my belief in accumulation –  PERIOD – seriously. Hardly anybody was believing me anymore into those lows, and I was questioning myself. And the very, very high fee “advisers” were all calling for much lower lows. But I just kept coming back to my beliefs. And on the next big selling wave, it will be the same thing to keep me grounded.