When the Logic of the Bull Market Suddenly Seems Illogical

10/14/11 Paris, France – Nothing much to talk about in the markets yesterday.

We had been expecting a bigger sell-off in the price of gold. The metal went down, about $300 if we recall correctly, but not as much as we expected.

In the last major bull market in gold, in the ’70s, the price declined by about 50% before going on to set a new record. The pullback in 1974 caused investors to question the premise of the whole bull market. Many dropped out and missed the big payoff.

Markets always test their admirers. The old-timers — such as Richard Russell — refer to the “50% principle.” A bull market can be expected to retrace as much as 50% of its gains…before going on to fulfill its destiny. If it goes down more than 50%, however, the bull market may be over.

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via When the Logic of the Bull Market Suddenly Seems Illogical.

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