A No-Brainer Buy Signal for Gold Stocks

A No-Brainer Buy Signal for Gold Stocks
By Jeff Clark
February 23, 2010

Be careful trading gold stocks right now.

The Bullish Percent Index for the gold sector (BPGDM) did turn higher and trigger a "buy" signal since I wrote about it a few weeks ago. And the stocks have bounced a bit more than 10% off their lows. But they're not acting well.

In fact, the action on Friday should cause concern for any gold stock bull...

Gold, the metal, opened lower on Friday, reversed, and then closed higher. But the gold stocks opened lower and stayed there. In a bullish environment, gold stocks lead the metal. So they should have turned higher first on Friday. But that didn't happen. The Bullish Percent Index did turn higher last week. Now, however, it has leveled out and could turn lower today unless the sector rallies.

Take a look...

A downturn in this chart would reverse last week's "buy" signal and send the sector back into "sell" mode.

While that would be inconvenient for the gold stock bulls, it would create the potential for an even stronger buy signal when the BPGDM turns higher again. From a longer-term perspective, it would be much more bullish for the gold stocks to decline one more time and test the recent lows before rallying higher.

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That doesn't have to happen, but it would be an absolute "no-brainer" buy signal for the gold sector if it did. It would set up the best buying opportunity in a year for these stocks.

For now, a sustainable rally in gold stocks is a 50/50 proposition. I'd much rather see a sharp drop in the sector that shakes out the remaining weak hands.

Best regards and good trading,

Jeff Clark

Editor's note: After the last gold stock buy signal, Jeff's Short Report readers racked up gains of 117% and 69% on the two gold trades he recommended. The next signal should lead to an even bigger opportunity. To get in on Jeff's next trade, consider becoming a Short Report subscriber. Click here for details.

The one chart that scares Richard Russell
"The bond market doesn't like what it sees."

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•	Oil surges past $80 per barrel after rising 13% in two weeks.
•	Oil-service rally continues... Baker Hughes, Smith International, and BJ Services hit fresh highs.
•	Euro slides to nine-month lows against the U.S. dollar.
•	Earnings today... AutoDesk, Home Depot, Macy's, Target.

	Last	Change	52-Wk
S&P 500	1108.01	-0.10%	+43.89%
Oil (USO)	39.03	-0.15%	+60.29%
Gold (GLD)	109.07	-0.37%	+11.52%
Silver (SLV)	15.90	-0.44%	+11.58%
U.S. Dollar	80.75	+0.24%	-7.49%
Euro	1.36	-0.11%	+6.95%
VIX	19.94	-0.40%	-59.55%
HUI	405.19	-1.36%	+26.05%
10-Year Yield	3.80%	0.02	1.41

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Company	Sym	Industry
Baidu	BIDU	online search
Penn West	PWE	oil & gas drilling
Dendreon	DNDN	biotech
Lennox Intl	LII	appliances
Procter & Gamble	PG	consumer goods
Time Warner	TWC	CATV systems
Genworth	GNW	insurance
Netflix	NFLX	movie rental
Flowers Foods	FLO	packaged food
Teva Pharma	TEVA	pharma
L-3 Comm	LLL	Big Defense
Mylan	MYL	pharma
Shaw Group	SHAW	construction
Berkshire	BRKA	holding company
Baker Hughes	BHI	oil services
BJ Services	BJS	oil services
Huntsman	HUN	chemicals
Tempur Pedic	TPX	mattresses
Home Depot	HD	home goods
Safeway	SWY	grocery stores
Alexion Pharma	ALXN	pharma
ITC Holdings	ITC	utilities
Costco	COST	discount store
Millicom Intl	MICC	telecom
Pall	PLL	machinery
Big Lots	BIG	discount store

Company	Sym	Industry
YRC Worldwide	YRCW	trucking
Shanda Games	GAME	online games
Western Liberty	WLBC	bank

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