The gold stock correction was needed, is healthy and will provide opportunity
Let’s not belabor the point; the gold stock correction came as implied – and frankly, as needed – with several indicators of excessive counter-cyclical sentiment driving broad stocks down and gold stocks up.
That’s the bad news in the short-term (good news, if prepared). Beyond the short-term, the better news is that we are very likely seeing an upward adjustment in over-bearish broad sentiment as the stock market continues upward (also as anticipated).
This chart tells the story. From the April 20 edition of Notes From the Rabbit Hole (NFTRH 859):
When taking into account a once again frothy BPGDM (Gold Miners Bullish Percent Index) and the potential for a resumed relief rally in stocks, there is vulnerability in play here and now. The gold miners have done inversely well as the stock market puked.
So it will also be important to factor the near-term fate of stocks. If they resume the bear and the gold miners start reporting good earnings results, it’ll be rotation to this now (finally) unique sector. If stocks gain a foothold and make a strong BMR, the rotation could go the other way.
But currently gold mining macro fundamentals are ship shape and “it’s a bull market, you know.”
Here’s the up-to-the-minute version of the chart: Not rocket science.
For a bullish view to continue for the counter-cyclical gold mining sector, GDX will need to prove to be in a pullback within an uptrend, and the stock market in a bear market rally (BMR). I expect both of those things to prove out in the coming weeks. This April 30th article explains why Biden and Trump share blame for the shaky economic situation and why it’s going to get worse before it gets better (check out the embedded X post and its logical timing thesis).
It is important to note that I personally, and NFTRH subscribers were well aware of the dynamics in play ahead of time (proof, 1st chart above), which is really the only time you have for effectively making market decisions, ahead. Am I touting? Sure. Am I 100% truthful? Yes. We were prepared for the short-term macro situation currently expressing corrections and rallies from extremes.
So while current analysis may turn out right or wrong, you know it is not being issued by a “perma” anybody. It’s what I see. If current analysis (this is a buying opportunity in the counter-cyclical gold stock sector) proves out, we will be prepared again. For traders, it could also develop into a shorting opportunity in broad cyclical markets.
Back now to week-to-week management to be sure we remain on the pulse of these very interesting markets.
