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Published: January 28, 2010
It took only three days last week to wipe
out three months of gains. The selling was heavy. It was
persistent. And it took down every market sector.
Precious-metal stocks were among those suffering the worst
beating.
Indeed, the Market Vectors Gold Miners ETF (GDX) is down
-15%
from its January high, eclipsing the -5% loss in the S&P 500. If
we measure the action from early December, GDX is down -23%.
Ouch. It has been a difficult couple of months to be a gold bug.
But just as the sun has peeked through the clouds above my
rain-soaked Northern California town, there's a ray of sunshine
beaming down on the gold stocks. It comes in the form of the
bullish percent index.
A bullish percent index (BPI) measures the degree to which a
sector is overbought or oversold. It ranges from 0 to 100, with
readings above 80 indicating overbought conditions and readings
below 30 signaling oversold.
You may remember we took a look at the BPI for the
transportation sector last week. Transportation stocks were
overbought, and the BRTRAN had just generated a sell signal.
The Dow Jones Transportation Average is down over -5% since then,
and it still has further to fall before the bullish percent
index even comes close to reaching oversold levels. The same is
true for most of the other market sectors as well. So the
selling isn't over yet.
Except perhaps in the gold sector.
Gold stocks peaked long before the broad stock market did, and
they've sold off much more. While the bullish percent indexes
for most market sectors are still closer to overbought than
oversold, the gold stock BPI (BPGDM) moved into "oversold"
territory yesterday.
Take a look...
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The precious-metals sector hasn't been this oversold since
the BPI bottomed out at about the same time last year, after
which gold stocks bolted +15% higher on average over the next two
weeks.
It's hard to say if a similar move is in the cards for the gold
stocks this time around. But if you're anxious to put money to
work in anticipation of a bounce, the gold sector offers the
most compelling setup we've seen in a year.
-- Jeff Clark
Editor
Growth Stock Wire Note: This article originally appeared on
Growth Stock Wire. |
