The Bullish Percent Index for the gold sector (BPGDM) just triggered a buy signal.
The BPGDM generates only one or two trading signals each year. The last buy signal we got back in October kicked off a three-month-long 25% rally in the gold sector.
This current buy signal is set up to be just as powerful.
Let me explain…
The BPGDM measures the percentage of gold stocks that are trading in a bullish technical formation. It’s basically a gauge of overbought and oversold conditions.
Since it’s measured as a percentage, a bullish percent index can only reach as high as 100% or fall as low as zero.
Typically, a sector is extremely overbought when its bullish percent index rallies above 80%. It’s extremely oversold when it drops below 30%.
Trading signals are generated when the index reaches extreme levels and then reverses.
Take a look at this long-term chart of BPGDM…
The blue arrows on the chart point to the previous buy signals of the past four years.
Here’s how the Gold Bugs Index (HUI) performed after all of those signals…
HUI gained 33% in four months following the buy signal in December 2021. It rallied 45% in four months after the October 2022 signal. The gold sector surged 25% in just one month following the signal last March. And, HUI gained 25% in three months after the BPGDM buy signal in October.
Last Friday, the BPGDM triggered another buy signal. This time, it’s happening with the gold sector trading at its lowest relative value to the S&P 500 in over two decades.
So, conditions are set for one heck of a gold stock rally.
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Of course, the gold sector has been hard to trade over the past year. We’ve seen lots of potentially bullish setups fail. That has led to lots of frustration among gold stock traders. And, it has created an extremely pessimistic atmosphere.
But it is from this sort of extreme pessimism that the best rallies develop.
I expect the gold sector will be much higher a few weeks from now than where it is today. Traders should look to buy gold stocks on any weakness in the days ahead.
Best regards and good trading,
Jeff Clark