You’ll Know It When You See It!
by Bill Holter, JS Mineset:
A topic I have written about before, “GAPS”. This is no acronym, simply a description of what is going to happen, probably quite soon! If you don’t now what a gap is now, you will know it when you see it! In technical terms, a “gap” opening is when a market opens either higher than the previous day’s high and does not trade down to that previous high …or, trades below the previous low and does not trade back up to that low. On a chart this action will leave a “gap” of emptiness signifying no trading took place in the gap area.
One place we are already seeing “gaps”, many in fact, are the gold and silver mining stocks. Since the beginning of the year there have been four or five instances where these gaps have occurred. Under “normal” circumstances, almost all gaps get “filled”. Meaning the asset in question will ultimately trade back to the gap levels and “fill” in the chart. We in my opinion are in no way living in “normal” times and the current and coming gap openings will be huge and never be filled. “Never” is a very long time, in this case it will be a generation or more in many asset classes.
As you know, I believe we are in the process of a financial meltdown that will alter the landscape on such a grand scale, history will call it something more severe than “the greatest depression”. In fact, I believe many currencies will go away and be replaced by new currencies. Credit will cease for a time and business will need to adjust to a new paradigm with far less credit but I digress.
The coming gaps will do some serious damage to psychology, let me explain. From a psychological standpoint, gaps cause investors a “deer in the headlights” moment. Meaning, when something trades at a new level, many investors are frozen. The psychology of “I will buy on a pullback, or sell on a bounce” comes into play. The only problem is the bounce or back never comes …which means neither does the purchase or the sale! Just like Pavlov’s dog training, the filling of gaps always happens …until they don’t! It has been my (and others) contention we currently live in a “controlled” financial world. When saying controlled I am talking about the thought process “don’t worry, the government won’t ever let it happen”. Gaps in the “wrong directions” will do serious damage to this prevailing psychology!
You must also understand, market makers try their hardest to prevent gaps because it displays a serious mismatch between supply/demand dynamics. But this is where we are today. Our markets have been managed for such a long time and in such severe distortions, gaps will be Mother Nature’s natural way of restoration. What has taken years to create will be “righted” in a small fraction of the time.
In many past writings we talked about “holidays”. A “financial holiday” will be the ULTIMATE GAP! Any banking or market holiday will be a function of supply or demand that cannot be met. In other words, market forces so large a “clearing price” cannot be found. We saw a precursor to this back in the summer in the Chinese markets where they simply closed until order could be found …(they pulled the plug!).
Think of gaps as mini tremors leading to the massive tectonic shift. Gaps will display the coming psychology where demand cannot meet supply in any fashion (or vice versa). The final “gap” will be the closure of the markets for days or even weeks. The reopening of markets in my opinion will be unrecognizable pricing. In other words the “re set” will have occurred! If the re set of asset cross pricing has not gone far enough, another closure will occur and the process continued until supply and demand finally come into balance with a true clearing price. Governments and central banks will be totally overwhelmed in their efforts at “showing” you how things are. It will then become apparent to everyone how things REALLY ARE!
image: howitworksdaily.com
