The Bullish Percent Index for the Gold Sector (BPGDM) just generated a “double” sell-signal.
Sell signals are rare for this indicator – occurring once or twice each year. Double sell signals are even less frequent. That happens only about once every two years. And it’s a bad sign for the gold stocks.
Regular readers know the BPGDM generated its first sell signal of 2024 last month. Since then, not much has happened in the gold sector.
The Gold Bugs Index (HUI) dipped a bit, rallied a bit, and then dipped a bit again. HUI closed Wednesday at 272 – just about the same level at which it was trading one month ago.
In the meantime, the BPGDM rallied to a higher high – indicating an even more overbought and over-extended condition in the gold sector. And it recently turned lower again – generating a double sell signal.
A Rare “Double Sell” Signal Returns
The last time this happened was back in 2022. Gold stocks started the year with a fantastic rally. HUI gained 30% in the first two months of the year. That created an extended, extremely overbought condition.
And, when the Bullish Percent Index for the gold sector (BPGDM) turned lower in March, it generated the first sell signal of 2022.
HUI fell over the next few days – dropping from 318 to 300. But the gold stocks started rallying again. The BPGDM turned higher – thereby negating the sell signal. And HUI blasted to a higher high above 330.
One month later, the BPGDM generated its second sell signal of 2022 – or we can call it a rare “double” sell signal. This time, the sell signal stuck. And HUI plummeted 25% in just one month.
By the time the gold sector bottomed in September, HUI was trading at 180. That’s a 40% drop in six months.
The setup today looks similar to the setup back then. The BPGDM just generated a double-sell signal. Take a look…
Look at how similar the current action is to the action in 2022. Not only do we have a rare double-sell signal from the BPGDM. We’re also we are entering a seasonally weak period for the gold sector. HUI often declines from early summer into the fall.
A Decline Could Be Likely
Of course, none of this guarantees that the gold stocks are going to decline. Nothing in the financial markets is ever guaranteed. But, if we’re playing the odds, it seems to me the chances of a decline over the next several weeks are far greater than the chances for a rally.
And, that decline could get started with the FOMC interest rate decision next Wednesday.
You see, part of the reason gold and gold stocks have been so strong this year is due to the belief the FOMC will soon begin to lower interest rates. A falling interest rate environment tends to be bullish for gold. And investors have been buying the gold stocks in anticipation of rate cuts.
If the Fed says anything next Wednesday that causes investors to doubt that expectation, then gold stocks are set to decline.
And, if the BPGDM double sell signal plays out anything like it did in 2022, traders will have a much better opportunity to buy into the gold sector a few months from now.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
Everyone wants to know when to buy, sell, or hold a stock. FAST Graphs reveals this by clearly illustrating the value of the business relative to its stock price. Get 25% off using Dividends and Income's special referral link and coupon code AFFILIATE25
Source: Jeff Clark Trader
