Gold Stocks Market Vectors Miners ETF (NYSE: GDX) Provide Market Timing Signals - Mike Swanson (05/30/12)
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Yesterday gold and gold stocks were down even though the stock market was up. Some people were wondering what is up with that? There has been an assumption among many that the stock market correction that began over a month ago has been overdone and the market should just go up. Those people are ignoring the seriousness of the Greece debt situation and the potential of the European debt crisis to spread to Italy, Portugal, or Spain. This crisis has been going on now for over two years and in my view is now reaching its climatic stage, which will bring a violent correction in the market and a huge buying opportunity for those that take advantage of it.
But what of gold?
Long-term I think metals and mining stocks are great investments. I think once the correction is over they will likely lead the markets for the next few years.
But gold and gold stocks have been in a decline since last September. Yes they have had a big bounce lately, but they dropped again yesterday.
The reality is both have tended to lead the stock market. So their weakness for months has preceded the current market correction. On a short-term basis they have done the same thing in the past few weeks. We've seen a bounce in the broad market, but gold stocks actually started to firm up before that bounce began. Now yesterday they turned down even though the S&P 500 went up. They probably were showing that the bounce in the stock market is about done.
You can see this in the 60 minute chart of the gold stock Market Vectors Miners ETF (NYSE: GDX) above. Notice how it bottomed out three days before the S&P 500 did and actually started to rally two trading days before the broad market did too. It led the market up. Now its getting weaker than the market again though and probably will lead it down.
I believe this correction is going to last at least another few weeks, but the action in gold stocks compared to the rest of the market will be something you should keep an eye on, because as the correction nears its end I expect we'll see gold stocks start to fall less than the broad market does on a percentage basis and actually hold up at the end of the correction. Gold stocks will try to make a double bottom here.
That will make for a good sign of a stock market bottom when combined with other factors such as a spike in the VIX, panic selling, and simple fear.
Oh, and I can't help but mention to you Facebook closed below $29 yesterday. Don't touch this radioactive stock!