Gold, Silver Stocks Are Overbought...But That’s Bullish
Jordan Roy-Byrne, CMT | Apr 18, 2022 12:28AM ET
Gold and silver stocks had been consolidating bullishly while Gold and Silver corrected.
We documented it in recent weeks and even anticipated more consolidation and correction.
However, Gold was able to break resistance at $1960, which was enough to launch the already strong gold and silver stock ETFs—VanEck Gold Miners ETF (NYSE:GDX), VanEck Junior Gold Miners ETF (NYSE:GDXJ), ETFMG Prime Junior Silver Miners ETF (NYSE:SILJ), Global X Gold Explorers ETF (NYSE:GOEX)—into a fresh breakout.
The miners have broken out from bullish flag patterns, and odds favor that they will trend higher towards their upside targets, noted by the horizontal blue lines.
Early in a new bull market, overbought conditions and strong breadth are a good sign because it portends more strength in the immediate future.
As of Wednesday, 100% of the HUI Gold Bugs Index stocks and 100% of GDXJ’s top 33 holdings were trading above their 50-day moving average, with 94% and 96% trading above their 200-day moving averages.
These figures could scare someone away, but rather, early in a new uptrend, they are a bullish signal.
One excellent indicator for spotting interim and more significant peaks is the number of new 52-week highs, smoothed by a 20-day average.
The chart below plots GDX and GDXJ along with the number of new 52-week highs, smoothed by a 20-day average.
Significant peaks (2016, 2019, 2020) occurred with the 20-day average of new highs at 25% to 30%, and interim peaks (within uptrends) occurred at around 13%. The current 20-day average of new highs is 5% for GDX and 2.4% for GDXJ.
The gold stocks are overbought but not yet close to even an interim peak based on the above indicator.
In a bull market, overbought often becomes more overbought. Waiting for a correction is not necessarily the prudent approach. There will be points to trim profits and hold positions, but this is not one.
Quality juniors are starting to move. The window to buy quality at cheap valuations is closing, but you still have a little time.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.