After a huge rally in June, the gold sector has continued to press even higher.
The VanEck Vectors Gold Miners Fund (GDX) closed at $26.10 per share on Wednesday. That’s its highest level in a year. And, in spite of my cautionary comments last month that “gold stocks could use a break,” the sector shows no sign of slowing down yet.
But, I’m still cautious on the gold sector.
Don’t get me wrong… I like the gold stocks. I think the sector will be higher in the months to come. But, I’m not willing to chase them higher here. Instead, I’ll be looking to add exposure to the sector on a pullback.
And, based on the look of the following chart, I suspect that pullback may happen sooner rather than later.
Look at this chart of GDX…
You can see that as GDX rallied to a new high on Wednesday, key momentum indicators like the Moving Average Convergence Divergence (MACD) and the 14-day Relative Strength Index (RSI) failed to reach new highs. This sort of “negative divergence is often an early warning sign of an impending pullback.
And, since GDX is already so stretched above its 50-day moving average (MA) line (the squiggly blue line on the chart), and the shorter-term moving averages are quite extended as well, now is probably a bad time to be increasing exposure to the gold sector.
Traders will have a better, lower-risk chance to buy into gold stocks when/if GDX comes back closer to its 50-day MA, or when the various moving averages all coil together again.
It looks to me like we’re probably at least a couple of weeks away from getting that sort of setup.
Best regards and good trading,
P.S. Thank you to all the folks who tuned into my live, Open Line Q&A yesterday. And, thank you for submitting your questions.
One reader had a great question about where I thought gold was headed the rest of the year. Others asked about my strategy for a market crash, certain technical indicators, and even bitcoin.
If you weren’t able to attend live, don’t worry… you can still catch a replay of the event right here. But, you’ll want to soon… My publisher is taking the video down tonight at midnight. (If you’re a Delta Report subscriber, the replay will be up on the members-only portal for you to watch whenever you’d like.)
Today, readers pour in with comments on Jeff’s services…
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I’m a lifetime subscriber. I know that you are right sometimes and wrong sometimes. Sometimes you are certain – other times, not so much. I expect this. It can’t be any other way. I am invested heavily in the market, with a high amount of margin. This has worked out very well, but I am now pulling back on the margin, cutting it in half the past two weeks, with the goal of zero margin within a month. I expect the next 6 to 9 months to be very good, and I will remain fully invested in a cash account.
You are what I would call a reluctant bull. You tend to see more dangers around the corner than most, but you continue to see opportunities. I like this. I want to go to liquidate to all cash before the coming crash. Who wouldn’t? But I plan on doing so, and I am depending on you to sound the bugle for the retreat.
Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at [email protected].
Your Chance to Meet Jeff…
If you’ve been eager to ask Jeff a question, this is your chance to do it… in person.
Jeff will be at the second annual Legacy Investment Summit in Southern California, from September 23-25. And as a Market Minute reader, you’re invited.
There, you’ll be able to chat with him over cocktails and during breakout sessions. And you’ll be able to do the same with other investment greats like Doug Casey, Teeka Tiwari, and Jeff Brown, to name a few.