Nothing generates more hate mail for me than when I write something bearish about gold.

So, after today’s essay, I suspect I’m in for a hate-filled weekend.

The gold sector – as represented by the VanEck Vectors Gold Miners Fund (GDX) – finished 2019 with a solid rally. GDX gained nearly 10% in the final two weeks of the year. The stock was trading at its highest level since September. And, with the price of gold blasting higher earlier this week, it seemed like GDX was well poised for even more gains.

But, it didn’t happen. On Tuesday, GDX stalled at resistance (around 29.50) and then turned sharply lower – wiping out a good chunk of December’s rally. And, it looks to me like there’s more downside to come.

You see… the Gold Miners Bullish Percent Index ($BPGDM) just triggered a sell signal.

Take a look at this chart of $BPGDM…

A bullish percent index is a gauge of overbought and oversold conditions. It measures the percentage of stocks in a sector that are trading in a bullish technical formation. 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 20. And when the index reaches extreme levels and then reverses, that triggers a trade signal.

For example… last September, the index turned lower from a deeply overbought reading of 87. That action triggered a “sell” signal. At the time, the VanEck Vectors Gold Miners Fund (GDX) was trading for a little more than $29 per share. GDX declined to $26 a few weeks later. 

Following the December rally in gold stocks, the Gold Miners Bullish Percent Index once again rallied as high as 87. That indicates an extremely overbought condition.

Then, it turned lower on Tuesday. So we have a “sell” signal.

And, with the commercial traders holding a record net-short position in gold futures contracts, we have to look at this condition as bearish for the gold stocks.

I’m not necessarily suggesting that traders go out and establish huge short positions in the gold sector. I’m also not suggesting that traders sell all their gold positions. The longer-term picture for gold and gold stocks is bullish.

But, for the short term, we have a gold stock sell signal.

Now is probably not the best time to be putting new money to work in the gold sector. We’ll likely have a better chance to do so in the months ahead.

Best regards and good trading,

Jeff Clark

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Reader Mailbag

Today a subscriber shares his satisfaction (and gains) from Jeff’s introductory options advisory, Jeff Clark Trader…

Just wanted to say I enjoy Jeff’s teaching style. I have learned so much by watching the training videos and look forward to receiving the recommendations.

I am fairly new to trading options and have a basic understanding of them, mainly buying and understand the risk tolerance by not going overboard on leverage. My very first option trade was a put that I held for 20 days for a gain of 67%. Looking forward to much success with Jeff Clark Trader.

– Brad

And others respond to Jeff’s radical “Mickey Mouse” tax plan…

I completely agree with the sentiment about government budget management. The single greatest short-term threat to U.S. stability is the inability of the federal government to manage its income and expenses. It’s as true as when Ross Perot ran for president as it is today. Tax policy though… eh… the Disneyland analogy is a bit of a stretch. 

I wish the U.S. worked like the Disneyland you describe, but, let’s be honest… It’s more like a Disneyland in which even though everyone is supposed to pay to get in, one group isn’t allowed
on certain rides… other groups can cut the line… some aren’t even allowed to buy a ticket… and there’s another group that doesn’t pay altogether… isn’t it?

– Alex

Dear Jeff, I found this article amazingly well-written and thought-out. When are people going to wake up? The masses must rise and take back our country from those vampires who feed off the hard labor of the honest man and woman. How do you start a revolution?

– Christopher

I love reading Jeff Clark’s advice on the stock market, not so much on his “Mickey Mouse Tax Plan to Save America.”

Aside from being a for-profit enterprise with goals vastly different from that of a non-profit state, Disney need only answer to its shareholders, who get to make policy to further their interests.

Well, I could go on and on regarding the differences. Suffice it to say, Disney is a fantasy place, and not a good place for Jeff to dwell too long. He might forget he lives in the real world.

– Peter

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com.