After a few months of “outperformance,” it may be time for gold stocks to underperform.
Over the past three months, the gold sector has enjoyed a fantastic rally.
The VanEck Gold Miners ETF (GDX) has rallied from just over $22 per share to nearly $33. That’s a 50% gain in just three months.
During that same time frame, the S&P 500 gained 8%.
Of course, nobody is going to be disappointed with an 8% return over three months. But if given the choice, a 50% return is nicer.
And we made our choice back in November 8, when we noticed the ratio chart of the gold sector versus the S&P 500 had started to move higher.
It was an excellent time to buy gold stocks…
But now, the chart has a different look to it. It may be signaling that gold stocks will underperform the broad stock market in the weeks ahead.
Here’s an updated look at the ratio…
As this chart moves higher, it tells us the gold sector is outperforming the S&P 500. When the chart moves lower, gold stocks are underperforming.
The ratio has been in a strong uptrend since November – which helps explain the outperformance of the gold sector.
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However, the chart is starting to run into resistance. And as the ratio has pressed higher over the past month, the momentum indicator at the bottom of the chart (MACD) has been falling.
This sort of “negative divergence” is often an early warning sign of an impending decline. That means we’re likely approaching the point at which gold stocks underperform the rest of the stock market – at least for a while.
This doesn’t necessarily mean the gold sector must decline from here. It could just mark time for a bit while the S&P 500 rallies and plays “catch-up.” That’s the bullish scenario.
The bearish scenario would have the broad stock market falling, and the gold stocks falling at an even faster pace.
Either way, now seems like a good time to trim some profits on the gold sector.
Best regards and good trading,
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Jeff Clark
P.S. No matter where the market is headed, you can still find ways to profit. On January 25, a 44-day window of volatility opened up, exposing our portfolios to a strange anomaly.
But I shared a strategy so reliable, that it’s been called a “stock market law of gravity.” Not only can it protect us from this crash, but potentially double your money dozens of times in a matter of days.
If you missed out on this urgent presentation, you can watch the replay right here. In it, I share three stock tickers you’ll want to target in the coming days.
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