In our last blog we discussed the similarities of the current pullback to the 4 pullbacks of 2013. Each 2013 pullback has been a 4-6% correction that had the buy on dip traders come back with a vengeance. We were highlighting the support in the 1750.00 area on the S&P500 March futures.
We are at the moment of truth. The S&P500 is in a similar oversold state that preceded market rallies throughout 2013. In 2013, after each brief 4-7% multi-week correction, the buy on dip traders jumped in and bought with a vengeance. If this pullback is going to be a buy on dip, it could happen off this area in the 1750.00-1770.00 zone. The McClellan Oscillator is currently oversold below the -50 level. The September and December "buy on dip" opportunities started with the McClellan Oscillator at these exact oversold levels.
Over the last 6+ months we have been prematurely looking for a bottom in gold stocks. It is human nature to want an investment to immediately validate your purchase by increasing in price. Inversely, there is substantial amount of emotional and financial stress that is associated with the investment continuing to decline and a prolonged depression of being trapped in a losing investment. The interesting part is that the very best buying opportunities occur when an investor feels the most dreadful about their investment. In fact the only time you can make the absolute most money in a stock is when there are no investors left to sell and therefore the downside risk is mitigated. When all the short sellers have already sold short there fill and the weak hand investors have been margin called or capitulated into a depressed sale of their shares, the stocks entire float becomes held by the strong hand investors.
The gold mining sector has experienced more negativity and pessimism than any other sector of the market. This has left investors feeling like deer in headlights. Gold bugs will suggest numerous reasons why the precious metal should be at $2,500 and why gold mining companies should be flourishing.
Topics: gold mining, gold mining stocks, GDX, gold mining sector, buying gold, buying gold miners, hedge against inflation, Gold Miner Bullish Percentage Index, strangle, call, put, option, indentifiable risk