Stealth Bottom Coming in Gold Stocks https://www.resourceinvestor.com/2012/03/27/stealth-bottom-coming-in-gold-stocks?ref=hp
The struggle of the mining stocks has surprised many including us. We thought record profits and a bullish environment would catapult the miners out of a consolidation and into a major breakout. The perception of an enduring recovery and the endurance and persistence of the wall of worry stage has left the gold stocks unloved and under-owned and for far longer than we expected. We do have to remember that the miners exploded in 2009 and 2010 and it is normal for a bull market to spend months in consolidation. As a result we hear calls of market manipulation and intervention and calls to abandon gold stocks and only own physical metal. We heard these calls in 2008-2009 and now we hear them again, which would only prove disastrous for those who heed such advice. The miners are not only extremely oversold but recent price action suggests a bottoming process is beginning.
Let us start with sentiment which is an important factor in deciphering potential bottoms.SentimenTraderhas a new indicator based on put-call ratios, short-interest and analyst expectations which evaluates the overall sentiment of a sector. As we can see, the gold stocks are presently rated as bullish from a contrarian perspective.
Another reason we are expecting a bottom is the relative strength in the leading miners. Gold Corp, Barrick and Newmont comprise about 42% of the HUI and GDX. Therefore, their status and performance carries much weight within these indexes. From the chart below, one can see that GDX printed new lows in October, December and again last week. While the market printed new lows, Gold Corp, Barrick and Newmont rebounded from strong support.The strong underlying support in these names bodes very well for the entire sector.
