One of the hardest, but probably the most important traits for a trader to learn is patience. I’ve seen this over and over throughout the years. Traders invariably give up right before a big move is ready to start, either because the market chopped sideways for too long, or because price suffered a big correction.

I’ve noted before markets act like a pendulum, the further price gets stretched in one direction the bigger the move can be in the other direction once the trend reverses. But there’s another pattern that can also produce a big sustained trending move and that is a long frustrating sideways basing pattern. This is a very familiar pattern during an intermediate cycle low in gold. Often there are 3 to 6 weeks of sideways chop followed by one final push down (the bloodbath phase) that causes dumb money to stop out and give up. This is the period where we start to see a lot of analysts jumping on the bear bandwagon and predicting lower prices for the foreseeable future. Does this sound familiar right now? That of course is the fuel for the next rally, and depending on how deep the correction is or how long the sideways chop the next rally can be extremely profitable.

It continues to be my opinion that the dollar started a cyclical bear market a year and a half ago. But for the bear market to continue we needed to clear the bearish sentiment that had developed by the beginning of this year. As you can see that has now been accomplished. The two month rally has gotten everyone back on the bullish side of the boat and we now have the fuel to start another leg down. It’s my opinion that the next leg down in the dollar will drive a breakout from the basing pattern in the metals market.

Source: sentimentrader.com

As I mentioned, a strong trending rally can be driven by either an extremely deep correction or a long period of sideways consolidation. Look at this next chart of GDX. That’s almost 2 years of going sideways, and I can tell you it has completely squashed sentiment after the high expectations generated by the baby bull. This is exactly what we need to see in order to produce the fuel for the next big move up. But I can tell you without a doubt the vast majority of gold bulls have become frustrated and have thrown in the towel, and most of them are going to miss the next rally just like they missed the baby bull.