Gold Stocks Complete First Major Bottom Since 2008
By Jordan Roy-Byrne, CMT
All bull markets have to endure a plethora of corrections and all bull markets have to endure a handful of major corrections. The gold stocks are no different. In fact, due to nature of the mining business and the high-beta status of these stocks, it is very easy for investors to forget that they (the gold stocks) are in a real structural bull market. Corrections and crashes are commonplace and yes, even in a bull market. Yet in 2011 the gold equities did not crash. They merely digested and consolidated the massive recovery gains from 2009 and 2010. This persistent consolidation has left many scared, frustrated and distrustful of the sector at precisely the wrong time. Gold stocks have quietly completed a major bottom, their first since 2008.
There are several strong reasons why we believe the gold stocks have completed a major bottom. As we discussed in our last article, the bullish percent index (number of stocks on a point and figure chart buy signal) dipped to 10%. The last time this happened was in 2008 when the gold stocks bottomed. The two big downturns in 2008 occurred with the bullish percent index at 30% and 70%. Presently, the entire sector is oversold and thus there is very little room to fall but much room to rebound.
As we see in the chart below, GDX bottomed at the 40-month MA which also supported key bottoms in 2001, 2005, 2007 and 2010. Furthermore, the market bottomed right above $47, the 38% retracement. Most important, instead of following through on its apparent breakdown, the market reversed back above previous support at $52 and is set to close at a three week high.
We also want to note how the market has made major bottoms in 2005, 2008 and at the very end of 2011. Including the low in 2000, that is four major lows for this bull market in its first 11 years. This is similar to a few previous bull markets which include the Nasdaq (80s and 90s) and the gold stocks (60s and 70s).
(Rest of article plus more charts linked below)
