I recommend you don’t read any further. For what comes next is reckless... pure danger... like standing in front of a freight train... and totally unsuitable for the savvy investor.

The freight train I’m talking about is a trade that goes against every bit of good sense the average person has. It’s objectionable, crazy, and bound to lose... like the best trades always are.

Here’s how this “lunatic” trade works:

1. Emotion.

Emotions are a big clue. All humans are wired the same way, but in the market, if you act like everyone else, you lose. I like the fear. If I’m scared, I’m betting against my emotional hard wiring and I know I’m on the profitable side of the trade.

Today’s trade terrifies me. I can hardly bring myself to type it up on the computer.

2. Sentiment.

I bet against either exuberance or despair. I’d prefer front-page headlines, local news coverage, and best-selling books, but any form of popular acceptance will do.

Last week, both Barron’s and the Financial Times featured this bull market on their front pages. Barron’s asked if the price might double. The Financial Times devoted their banner headline to it.

And just recently, CNBC started flashing this price in its corner quote box.

My local news station gave the story some airtime on Friday, and my mother also commented. She say’s it’s going higher.

3. Fundamentals.

If there is no fundamental explanation for a trade, sign up the lunatic. Fundamentals explain why prices HAVE moved, not where they WILL move. Surprises move markets.

I can think of a dozen strong fundamental reasons for this market’s rise, but not a single reason why it should sink. Corollary: It’ll probably sink.

4. Other examples

This year, we’ve seen two counter-trend corrections. The dollar had been in a bear market since October 2000. On January 1st, it bounced.

Crude oil’s been rising since late September 2001. On August 29th, it peaked.

Both corrections coincided with a spike in sentiment. In the dollar’s case, the press was calling for a crash. The Economist had the dollar on the front page being eaten by an insect. BusinessWeek called for the dollar’s demise. The papers told of central banks dumping dollars and of Warren Buffett’s gargantuan purchases of foreign currencies.

Same story in the oil market. Add a natural disaster onto already tight supply and roaring demand, and you get the perfect conditions for a correction, not a spike.

These are classic contrarian maneuvers. Shocking fundamentals... extreme sentiment... Only lunatics sold oil short and bought dollars...

And only the lunatics made money.

Gold has risen $50 dollars an ounce in the last 4 weeks, and nearly $100 in the last 9 months. It’s all the rage. A correction is due.

What does the lunatic do today? He shorts gold for a quick trade. Good luck to him. Here at DailyWealth, we wouldn’t touch a trade like this.

So why do I write about it?

Corrections are healthy. They strengthen the bull market by confusing, scaring and forcing the weak hands into losing money. But they can be enticing too. Like Odysseus and the siren song, we need to fill our ears with wax and prepare for the bounce. Our resolve will be strong.

DailyWealth advice: Gold is due for a short-term correction, but don’t short gold. Don’t sell gold. Gold is in a bull market. Do Nothing.

Unless you are a lunatic...

Good Investing,

Tom Dyson