Gold And Gold Stocks Overbought…What To Expect

Chris Vermeulen


As you likely have noticed, gold and gold stocks have been the favored assets thus far in 2016.

The GDX gold miner’s ETF is up 150% from the low this year. Moreover, the exciting part is that it’s just getting warmed up!

As you can see from my gold stage analysis in the chart below, the price of gold has just broken out of its yellow Stage 1 Accumulation Phase and has started a bull market.

The first major resistance level will be the $1550 level. However, depending on how the economy and global financial situation unfolds, gold could easily blow past this level and reach $2400 per/oz. in the next couple years.

Gold Stocks – Where They Have Been And Are Headed

Last year I talked about gold stocks and how they typically rally 50%-150% in value within the first rally or bull market leg. Well, that has just happened. This is great…but now what?

Take a look at the gold miners ETF – GDX below. This is a chart I have posted -- and it updates publically on my public list for everyone to see.

Miners dropped into key my long-term investment pricing zone and have rocketed higher to first resistance. I expect some type of pause for a pullback to start, but long-term this ETF should rally back to up $60’s in due time.

Gold Stocks Overbought

The gold miner’s bullish percent index is screaming overbought with nearly 100% of gold stocks trading with a bullish chart pattern base on Point&Figure charting. Expect them to stay overbought for some time. Moreover, we may only see a minor and quick pullback before going higher.

Gold Stocks Trading Conclusión

Gold stocks are officially overbought at current levels. But, what most traders and investors do not understand is that during a bull market stocks will be, and remain, overbought the majority of the time. In many cases, stocks will only pause before moving higher. This means that selling positions or shorting gold stocks in anticipation of a pullback is a losing position most of the time.

The better play is to wait for the bullish percent index to pull back. Subsequently, then start to turn back up before buying or adding more gold stocks to your portfolio.

During the early stages of the bull market is when chart patterns for stocks and breakouts of these patterns are most accurate and tradable. Breakout trading has been out of favor for years in both gold stocks, and the overall stock market in general because of the Stage 1 basing phase gold has been in, and the Stage 3 topping phase the US stock market is in.

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