The gold sector today looks a lot like the financial sector looked two months ago.
Gold stocks are cheap. The sector has lagged badly behind the action in the rest of the stock market.
Investor sentiment (a contrary indicator) towards gold stocks is horribly bearish, as folks have opted to throw money at more exciting assets like Bitcoin and electric vehicle stocks.
So, just as the financial sector was setting up for one heck of a “catch-up” rally two months ago, the gold sector is doing the same today.
Take a look at this chart of the VanEck Vectors Gold Miners Fund (GDX)…
At last month’s low, just below $34 per share, the MACD momentum indicator (at the bottom of the chart) reached its most oversold level since last March – which was the most oversold GDX had been in over a decade.
In other words, the proverbial “rubber band” for GDX was stretched just about as far as possible to the downside. This is usually a strong sign the gold sector is nearing a significant intermediate-term bottom.
I believe we got that bottom on the Friday after Thanksgiving.
You see, a gold sector decline typically ends with one final, exhaustive flush to the downside. It happens when the sector is already oversold, and the last of the bullish holdouts finally surrender, throw in the towel, and sell their shares.
At that point, there’s no one left to sell. A little buying pressure causes the sector to reverse. And, the rally begins.
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That’s what we saw during the half-session that followed Thanksgiving.
GDX was already oversold when it gapped sharply lower again on Friday. That action exhausted the remaining sellers. And, slowly but surely, buyers started to step up. GDX reversed its losses and closed higher on the session.
GDX has continued to rally last week. It has climbed back above its 9-day exponential moving average line (EMA – the squiggly red line on the chart). This is important because it shifts the short-term momentum from bearish to bullish. And, it increases the odds that any short-term pullback from here will form a “higher low” on the chart – which is another sign the sector has bottomed.
There’s plenty of resistance overhead – first at the $37 level, which was its previous support – then, at the 50-day moving average (MA – blue line) near $38. So, we’re not likely to see a straight shot higher.
The action is going to be choppy.
But, it sure looks to me like the gold sector has put in a bottom, and the path of least resistance is now higher. I expect most gold stocks will be higher in the weeks ahead.
Best regards and good trading,
Jeff Clark
P.S. With the decline in the gold sector around Thanksgiving, and the subsequent rally that’s continuing from last week, it’s easy to get confused and predict which way this tricky sector will move next.
In my 3-Stock Retirement Blueprint, I talk at-length about why I love trading GDX – and exactly how to use it to your advantage with the strategy I’ve been using for nearly three decades.
Click here to get my Blueprint… I expect it could be equally as profitable for you as it was for me.
Reader Mailbag
In today’s mailbag, Jeff Clark Trader member Gary and Market Minute subscriber John share their thoughts on wearing masks in response to Jeff’s Monday essay…
We’re being asked to stay home in our warm, dry houses and sit on a soft couch while watching god-knows-what on TV, and to wear a mask when we have to go out. Our ancestors, when they went to war, had to carry heavy packs, live in wet, cold trenches with the stress of knowing that they had to charge through barbed-wire fencing, while being shot at and watching their buddies drop around them and die horrible deaths in a faraway place.
Or, they had to cope with the mental terror of having to charge out of a landing craft into chest-deep water while all their buddies are being mowed down at Normandy. Surely, we can wear a mask in honor of those who went to a real war in order to protect the people that they loved and future generations.
– Gary
Jeff, I understand the frustration some have with a mask – but, forget the Deep State stuff – because, in fact, each person wearing a mask does make a difference, and it will help us return to normal smiles!
In the meantime, you can order a mask with your personal smile on it, or order a see-through mask so all can see your pearly whites! Whatever you do – please encourage all to wear a mask for the good of the community! Many thanks.
– John
Meanwhile, Jeff Clark Trader member Steve and Market Minute subscriber Hans-Ulrich find solidarity in Jeff’s opinion…
Nice article, Jeff! We should all practice smiling behind the mask, so we don’t forget how to. This crisis will pass, and we can get back to normalcy as social beings. Regards.
– Steve
Dear Jeff, you were right on! This mask depersonalizes us. Back in time, women had to wear masks as a sign of obedience. This way they weren’t personalities… and there was nothing to take into consideration. I’m happy that you dare to look behind the curtains, although you seem to be afraid to be called a conspiracy theorist.
We all have to become conspiracy experts by daring to look beyond what they feed us in the media (that belongs to a handful of people). For the first time in human history, we are able to inform ourselves as much as we want to, thanks to the internet. Too many people decide to stay oblivious to what’s
really happening.This crisis will decide if mankind is mature enough to be responsible for our fate. I hope your letter helps people look behind the curtains and speak up.
– Hans-Ulrich
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].