Accumulation and Distribution is What Sets Up Markets

April 1, 2017 Trader Scott

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.) It’s not the QE and the Trump Tweets, etc. That stuff is all part of the trend. That’s the stupid stuff which people use an excuse to buy, buy, buy. 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. 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. While bonds are actually bullish intermediate term, 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, not currently. Or you should be buying the stock market -on the next selloff, not currently. Yes the stock market. Why? Because it is in a massive bull market, but it is just in need of a reset, just like all bull markets need at times after a big trending move – like gold will need down the road also. And 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 – 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.