Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Bifurcated US Stock Market - 29th Apr 17
Damn the Deficits, Huge Trump Tax Cuts Ahead! - 29th Apr 17
Gold Hostage to Stocks - 29th Apr 17
Warren Buffett Hates Gold… But Here’s Five Reasons You Need To Own It - 29th Apr 17
Stock Market Sentiment, Re-Fueled Along the Way - 28th Apr 17
Calling out the Central Bankers - 28th Apr 17
Fed's Third Inetrest Rate Hike and Gold - 28th Apr 17
USD/CAD - Invalidation of Breakout or Further Rally? - 28th Apr 17
What Happened to the Stock Market Crash Experts Were Predicting - 28th Apr 17
Earth Overshoot Day - Human Population Growth - 28th Apr 17
Misunderstanding GDXJ: Why It’s Actually Great News For Junior Miners - 28th Apr 17
What Makes Bitcoin Casinos So Remarkable? - 28th Apr 17
Financial Markets Improvised Explosives - 27th Apr 17
More Stock Market Short-Term Uncertainty As Stocks Get Close To Record High - 27th Apr 17
Elliott Wave Theory: Is Elliott’s Theory Enough? - 27th Apr 17
Billionaire Investor Paul Tudor Jones Says Stock Market Valuation Is “Terrifying” And He Is Right - 26th Apr 17
The Great BrExit Divides - Britain, USA and France - 26th Apr 17
10 Facts That Show Our Taxes Are Worse Than You Thought - 26th Apr 17
What Trump’s Next 100 Days Will Look Like - 26th Apr 17
G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS - 26th Apr 17
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

Gold Stocks Secondary Bottom Soon, Bullish Trend 2013

Commodities / Gold and Silver Stocks 2013 Dec 07, 2012 - 06:51 AM GMT

By: Jordan_Roy_Byrne

Commodities

I have to admit, I never saw the gold stocks correcting this much. After making a textbook double bottom and registering very strong momentum readings, I expected a relatively tame October correction to be followed by another leg higher into year end. I thought GDX would bottom at $49. Obviously I was wrong on all counts. It’s difficult to make predictions when they are about the future. Kidding aside, forecasts are only a guide or a potential road-map. No one can predict the future. However, we can assess risk, reward and probabilities. We think the current probabilities favor a secondary bottom in the gold stocks and very soon the risk/reward dynamic will be heavily in favor of longs.


Posted is a chart from sentimentrader.com. Their sector sentiment indicator is a combination of short interest and put-call ratios. It can’t get much worse for the gold stocks. (Well, perhaps just a bit).

Next, we want to look at the breadth of the gold stocks. Breadth is a measurement of participation. I wanted to look at a large group of stocks and measure their breadth at major bottoms and at secondary bottoms. For simplicity, I looked at the number of stocks trading above their 200-day moving average. The results are in the chart.

I wanted to compare the current breadth to the breadth seen at the secondary bottoms in 2005 and 2009. Note that at the major lows, breadth is usually at or near zero. At the secondary low in 2005, breadth was 41%. The market was in a stronger technical position then as the cyclical bear market was tame. In 2009, the breadth at the secondary low was 20%. Go back to 2002-2003 and you’ll notice a triple bottom. Unlike the present there was no major technical damage.

At the third and final bottom breadth was 10%. Presently, breadth is at 38%. It can fall to 20% and that would be in line with the most recent secondary bottom (following a major bottom). The conclusion is that following a major bottom long-term breadth should remain healthy. It still is.

Moving from the complicated to the simple, here is one thought as to how this secondary bottom could play out. We are watching $43 as it is both lateral and trendline support.

Less than three weeks ago we wrote:

If we are indeed correct that the metals and shares will remain range bound then your task is simple. Prepare yourself for further consolidation by having your buy list ready and then be ready to act when the time comes. A wise friend once told me that in a bull market the goal is to accumulate positions at the lowest prices possible.

It is always easy to say buy later or buy on a correction. How often do we hear that? Rick Rule says that when investing in the resource sector you are either a contrarian or a victim. Consider the present sentiment and technical construct and it is difficult to ignore this emerging contrarian opportunity. Oh and by the way, the Fed is meeting next week. With gold stocks tanking into the meeting, it provides the setup for a bottom and rebound into January. Now is the time to be vigilant as the time to be a contrarian could be only days away.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife