The follow criteria is specific, unlike the cliche that tells you wait for blood in the streets. And while the metaphor has weight, because it’s correct, how do we spot the blood in real life? Is it actual blood? Of course not. So, here are the things you need to look for.
Criteria 1: People in the industry actually committing suicide. I know this sounds crazy, but it happens to be a real thing in the resource sector. In fact, the resource sector, particularly agriculture, mining and oil extraction industries, have the highest rate of suicides among all industries according to the CDC. There are other factors that induce the suicides, such as high profile bankruptcies and fund closures. When a producer declares bankruptcy it’s a pretty good sign that production is shutting down. And when funds start closing, it’s a clear sign that people are running away from that sector as fast as they can. So, watch the obituaries.
Criteria 2: Bad news fails to move the needle. This happens when all the bad news is priced in, no matter how bad the news gets, price just won’t budge. This is a sure sign that sentiment has hit rock bottom, that there’s nothing left to give, no where to go but up. Only a matter of time.
Criteria 3: Retail traders hate it. Always do the opposite the opposite of the crowd. Got your favorite gold bug on YouTube and he’s talking gold dow? That’s a sure sign it’s gonna rise. retail traders are always chasing price near the top and running away when it’s set to bottom. The perfect negative correlating indicator. Jim Cramer works well in this regard as well.
Criteria 4: Trading below the cost of production. Oil dropped down like a rock heading into the COVID-19 pandemic and OPAC Saudi-Russia spat from 45 to 30 in about a week. It’s widely known the average cost of production at the time was about $45 a barrel. So any price below that was gold, when it dropped below $20 if you weren’t guying then you were a chump.
Criteria 5: All Time Low or down more than one standard deviation (68%). While there’s no magic number, one standard deviation is a good measure, and all time lows is a no-brainer. Just buy. But you may ask, why did it go down, maybe investors know something? This is true, but it also says investors have left and the asset is cheap. Sooner or later the bust trend is going to turn into a boom trend, and you want to be there.
So, if you ever wanted to know the secret to making a 10X trade, this is it. If you let these opportunities slip through your fingers, you have no business in this business.
