Miners extremely oversold

Another December and gold stocks have reached another extreme oversold condition.

This was the case precisely 365 days ago and the precious metals complex, led by the miners rebounded strongly for nearly three months. A year later and the gold stocks are even more oversold. They’ve been in a bear market for more than three and a half years and in terms of price are very close to matching the worst bear market of all 1996-2000. Only time will tell if this is truly the end of the bear market but in any case miners have a shot to start 2015 off positively.

The following sentiment indicator was developed by sentimentrader.com. For various ETFs it considers options activity, fund flows, the discount to NAV and future volatility expectations. Like any indicator, it is only a single indicator and is best used in conjunction with other indicators. Interestingly, the Optix for GDX touched 27% two days ago. That is the lowest since GDX began trading in 2006.

Breadth indicators also indicate an extreme oversold condition in the miners. The bullish percentage index (% of stocks on a P&F buy signal) for the GDM index (forerunner to GDX) is currently at only 3% but was at 0% at last weeks low. It has only ticked 0% a handful of times in the past two years. Second, the percentage of stocks in the HUI trading above their 200-day moving average is currently 6% but was 0% at last weeks low. The last time both indicators were at 0% together (as they were last week) was in late 2008.

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