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Let’s take a look at the gold market and see where things stand. At the end of January, as both gold and gold stocks were falling, I mentioned that based on gold had lost enough fair weather friends to signal the end of the sell off.
That was an actionable call since within a few days, both the precious metal and gold stocks found their footing again. The AMEX Gold Bugs index at 370-375 and gold at $1060. Even though the gold sector stopped going lower, it wasn’t able to really bounce back with any gusto.
Here’s a chart of the Philadelphia Gold and Silver Index (XAU) showing that its components were not able to muster above their 100 day simple moving average:
To reiterate, gold has been losing momentum for a while now. This chart, showing the percentage of XAU components trading above their 100 moving average eke out a bounce to 30% shows just how weak this market is relative to other sectors.
Looking at sentiment for the gold sector, MarketVane’s Bullish Consensus is really high at 77%. It was slightly higher (81%) back in late 2007: Gold Sentiment Too Bullish. The Hulbert Gold Newsletter Sentiment, in contrast, is middle of the road at 47%.
Here’s another way to look at gold breadth, the Bullish Percent Index for the Gold Miners Index (GDM) compared to the AMEX Gold Bugs index:
This chart confirms that breadth has completely changed. Before, shallow pullbacks were bought by traders and the up trend would resume almost immediately. But now, the tone is very different.
Check out this short video from Adam Hewison of INO where he explains what level he’s watching for a reversal lower. As for the Rydex, so called “dumb money”, here’s an updated chart which I shared with you a few weeks back (Gold Sentiment: Dumb Money Rushes Out):
We see the same thing. In contrast to the previous dips, traders are not buying (and increasing the asset levels of the Rydex Precious Metals fund). Something is different.
Looking at these charts, it should also be clear that the gold sector is far from a hedge for the stock market. In fact, gold stocks track the general stock market more than anything. So seeing gold stocks act weak even as the market itself heads into prior resistance with a very lopsided put call option outlook, makes me even more cautious.
If you were lucky or astute enough to rent the bounce higher from early February, don’t over over stay your welcome.
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