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March 23, 2011 / Jeb

Gold Moves Into New Highs After Cup and Handle Breakout

It’s very difficult for a trader to stick to a plan and not let news events dictate decisions. But every once in awhile there are news items that come along and attempt to trip investors up, forcing some to take their eye off the big picture. Many of us understand the long-term potential of precious metals and commodities, but the emotions — either unbridled enthusiasm or gloom and doom — of the herd often affect our decisions negatively at short-term turning points. This past week the news out of Japan (iShares MSCI Japan Index (EWJ)) affected the majority of investors, who liquidated their positions and ran to the US dollar and to long-term Treasuries as safe havens, which I believe was a mistake as the G-7 came to the support of Japan. Margin calls were issued and the fire sale intensified due to the hysteria produced by the doom-and-gloom media. It is important not to become influenced and to not allow news-related items to shake one off a long-term trend. Staying the course during times of great fear or news-related reactions is very difficult, but is necessary if one wants to ride a secular bull trend. You must not allow the news background to take your eye off the ball. Already, I heard from some that they want to give up and throw in the towel, and this is normal during sell-offs. When the times are easy and stocks are breaking new highs everyone wants to buy and it is great to be in the stock market, but when there is a sell-off and when companies pull back to key support, many want to throw in the towel and never want to trade again. Be careful of following this behavior as these sell-offs often turn out to be buying opportunities.

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