Wednesday, July 27, 2011
There's still room to profit off gold stocks... if you're picky.
In my S&A Short Report, we traded gold stocks three times since the sector hit a buy signal one month ago. We made 55%, 70%, and 80% as they each bounced off oversold levels.
Is it time for number four?
Let's take a look at an updated chart of the gold sector bullish percent index (BPGDM)...
This chart displays overbought and oversold conditions for the gold sector. Gold stocks are oversold when the BPGDM dips below 30. The chart signals a "buy" when it turns higher from oversold conditions.
Gold stocks don't get overbought until the BPGDM rallies above 80. The chart generates a sell signal when it pops above 80 and then turns lower.
Since I pointed out the buy signal in my July 1 essay, we've seen a solid run higher in the gold sector. The big gold stock fund, GDX, is up 12%. It's even up 2.5% from July 14, when I told you it's not too late to get into gold stocks. But at 56.67, the BPGDM still has a ways to go before it reaches "overbought" status.
Now... this is not the ideal, low-risk set-up we were looking at four weeks ago. So you have to be more selective about which stocks you trade.
What you want is a good-quality gold stock that has lagged behind the action in the sector and now looks ready to play "catch up." If you find that stock, trade it. After all, we're still working off a "buy" signal. And there's still plenty of upside here.
Best regards and good trading,
Jeff's been on top of the gold stock craze since the beginning. In fact, he forecast the rally before it even happened. Catch up on his predictions here...
U.S. dollar hits fresh record low versus Swiss franc... fresh four-year low versus Canadian dollar.
No sign of interest rate spike yet... 30-year Treasury yield stuck around 4.3%.
Patterson-UTI, Key Energy, Precision Drilling, and Pioneer Drilling soar more than 100% over the past year.
Natural gas engine maker Westport rockets 28% in one month.