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To understand the shakeout, it's helpful to be familiar with another market phenomenon called the "guillotine and the sandpaper." This was first described by legendary market analyst Bob Farrell…

You start with a dramatic drop. Prices fall 20%, 40%, even 70%. That's the "guillotine." Then comes the "sandpaper." This is a period when prices move up and down without going much of anywhere.

This go-nowhere action exhausts nearly everyone who is still left holding. Eventually, they give up and sell. When there are no sellers left, prices can start to rise.

When shareholders refuse to throw in the towel, though, the sandpaper phase will sometimes end in a shakeout. The sharp decline "shakes out" a final group of shareholders. And it reduces resistance to an upward move (because there are fewer sellers to push prices back down in a rally).

That's what just happened with gold stocks. The guillotine. The sandpaper. And the shakeout. As I said above, the rally that followed took GDX 51% higher to a seven-month high.

LETS HOPE THIS HAPPENS TO A R I