Yesterday's Jump In Gold Stocks May Be Good Portent For Gold Itself

Peter Brimelow's latest MarketWatch column focuses on the good showing made by the Amex Gold BUGS index of 15 stocks yesterday: even before gold's afternoon rise it had been up a little. Although the BUGS index (HUI) had been oversold the day before, there's another interpretation: its jump-up yesterday is a foreshadowing of a turnaround in gold itself.

JSMineset’s Dan Norcini sees a chance: He remarked this evening that “bulls have to be encouraged by the day’s action, as the technical indicators are so deeply oversold on the... HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears, who have made some pretty good profits on the way down, to snatch them before they disappear.”

So too does the proprietor of the website Jesse’s Café Americain. On Tuesday evening, he noted: “This intermediate gold top and correction bears a striking resemblance to the May-August 2010 top and correction just prior to gold’s amazing break-out rally.”

And, acidly, he added on Wednesday evening: “Nice bounce off a deeply oversold condition, as we noted yesterday.”

“And of course, today was the anticipated option expiration on the Comex. How unusual,” he said.

It could be...although a chart of the HUI suggests a head-and-shoulders reversal pattern is in the making:




Note that the latest bottom before the turnaround is at the same level as the mid-late October low. Should it top well below 600, I'd watch 490 for a breakdown.