The Gold Miners Bullish Percent Index (BPGDM) just flashed a new buy signal.
But most traders are ignoring it because gold stocks performed poorly following the previous buy signal.
That’s a mistake.
BPGDM trading signals have a long history of working out profitably. They’re often early – and that can be frustrating for traders who want immediate gratification.
But for traders who can buy today and then close their eyes for a while – there’s likely to be a big payoff in the months ahead.
Let’s look at the BPGDM chart…
The BPGDM measures the percentage of gold stocks that are trading in a bullish technical formation. It’s 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. The blue arrows on the chart point to previous buy signals of the past two years.
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Here’s how the Gold Bugs Index (HUI) performed after each of those signals…
All three of the previous BPGDM buy signals proved quite profitable. But those profits didn’t always happen right away.
For example, the largest gold stock rally happened after the BPGDM buy signal last December. But that rally took several weeks before it finally kicked into gear.
Once it got going in late January, the HUI gained 38% in less than three months.
The HUI is trading lower today than where it was when the BPGDM generated a buy signal in late July.
And that action has a lot of traders doubting the viability of these buy signals.
So they’re ignoring the signal that was generated last week.
But given the relative value of the gold sector to the S&P 500 (which I wrote about on August 18) – the gold sector could experience a rally similar to what happened from February through April.
And there’s a good chance that rally got started with last week’s buy signal.
Best regards and good trading,
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Jeff Clark
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