Placing this Correction in Perspective

Placing this Correction in Perspective

Once again the value of the Sentiment Oscillator Index (SO) has proved itself. Last October the Oscillator peaked at 75 and we said the enthusiasm was unsustainable. Sure enough, the market soon came off as a correction set in. That correction took two months to play out, bottoming out at a reading of 22 in mid December. Stocks in uptrend had fallen from 81% to 51%. From that point the market sentiment turned up again, reaching 71% in uptrend on 24/1/26, at which point it looked like we had a double top forming.

The reading on 11 October was a clear sell signal and there was another sell signal on 24 January. On both occasions the market was looking toppy. Two weeks after the January signal, having experienced the falls of last week, we have confirmation. We are now firmly in the correction phase. You may say that the drop in the gold price caused this, and you may be correct, but that doesn't detract from the importance of the sell signal that the Oscillator was giving. It is based in sentiment rather than real world facts. It was saying it was time to take profits. If you had done so, you would have protected yourself from the broad selloff we have just had.

Two weeks ago I asked if we had a blow-out situation in the gold price. Clearly it was a blowout that is having consequences right now but is it game over? I say not. It brings the gold price back towards the trend line of the biggest bull market we have ever seen in gold. There have been no changes to the underlying thematics.

No-one can really say what the correct gold price is at any one point. There is never a correct price. It is always a derived number that is affected by many views and real world factors and a gold price on any one day is a function of the expectations over the previous 2-3 weeks. I expect that market will digest the movements of the last few weeks and then adjust accordingly. Now is the time to reassess your portfolio without being overly influenced by FOMO, in preparation for the next leg upwards.