The Gold Miners Bullish Percent Index ($BPGDM) closed at 100 on Friday!
That means that 100% of the stocks in the index are trading with bullish technical patterns. It literally cannot get any better than this.
And, that’s a concern. Because, if it can’t get better, then it can only get worse. And, if history is any sort of a guide, then it might get a whole lot worse.
The only other time I can recall the BPGDM hitting 100 was back in July of 2016. The price of gold peaked a few weeks later. And, six months after, most gold stocks were down 40% or more. The damage started when the BPGDM turned lower after hitting 100.
You see, in most cases, a sector is overbought – and subject to a correction – when its BPI rallies above 80 (meaning 80% of the stocks are trading in bullish technical patterns). A sector is oversold when the BPI dips below 30. The BPI generates a sell signal when it turns lower from overbought conditions, buy signals occur when the BPI turns higher from oversold levels.
We’ve had three BPGDM sell signals over the past year. Take a look…
The VanEck Vectors Gold Miners Fund (GDX) fell 15% in the two weeks following the BPGDM sell signal last September. The sell signal in January took a little longer to play out, but it led to the massive decline in gold stocks in March. And, the gold sector fell 12% in two weeks following the late May sell signal.
Of course, the BPGDM hasn’t turned lower yet. So, we don’t have another sell signal, and gold stocks can certainly continue higher.
But, traders should pay close attention to this chart. Once the BPGDM turns lower, it’ll generate its fourth sell signal of the past year. If that one plays out like the others, then it should lead to lower prices for the gold stocks.
Best regards and good trading,
Jeff Clark
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