After chopping back and forth for the past several months, gold stocks are finally ready to rally. The Bullish Percent Index (BPI) for the gold sector just generated its first buy signal since December.
A BPI illustrates the percentage of stocks in a sector trading with bullish chart patterns. It's a measure of overbought and oversold conditions. In most cases, a sector is overbought – and subject to a correction – when the BPI rallies above 80 (meaning 80% of the stocks in the sector are trading in bullish technical patterns). A sector is oversold when the BPI dips below 30. And the BPI generates a buy signal when it turns higher from oversold conditions.
Here's how the Gold Miners Bullish Percent Index (BPGDM) looks now…
Earlier this month, the BPGDM dipped below 30. That’s an oversold condition – indicating that less than 30% of the stocks in the gold sector were trading with bullish technical formations.
But yesterday, BPGDM turned higher from oversold conditions and generated its first gold stock buy signal of 2017. The last buy signal we got from this indicator was back in December. Gold stocks – as measured by the VanEck Vectors Gold Miners Fund (GDX) – rallied 30% in just two months back then. A similar move this time would have GDX rallying above $27 per share by September.
There’s no guarantee, of course, that this BPGDM buy signal will play out the same way. But, after chopping around for several months, the gold sector has plenty of energy to fuel a strong rally.
Best regards and good trading,
P.S. If you have any questions about the gold market, stories of option trades you’ve made in the space, or want to know more about using indicators like the BPI, send me an email right here.