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Mark Hulbert
Nov. 20, 2009, 12:01 a.m. EST · Recommend (5) · Post:
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Another Dow Theory buy signal?
First Take "º
Hong Kong warns it's time to ease off the gas
By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- The average gold timer is now more bullish than on each of the past four occasions in which the gold market has topped out.
This suggests to contrarian analysts that the yellow metal has more than the usual amount of vulnerability to a significant decline.
Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by The Hulbert Financial Digest. As of Thursday night, the HGNSI stood at 68%.
The highest that this sentiment index got at the top of the previous four gold market rallies was 65%, and bullion dropped markedly following each of those tops.
To be sure, the current lack of a strong sentiment foundation doesn't automatically doom gold's rally. The final blow-off stages of a rally, which are usually accompanied by high levels of enthusiasm and excitement, often last longer, and go further, than most would have imagined.
At the same time, however, markets in which there is such a high level of enthusiasm tend to drop precipitously at the first sign of trouble. We saw a taste of this earlier this week, in fact: Gold for December delivery on the Comex dropped nearly $20 from its high on Wednesday to its low on Thursday -- just one day later.
Tellingly, however, the HGNSI did not budge in the wake of that air pocket. This suggests that the average gold timer is stubbornly holding onto his bullishness in the face of market weakness. Such stubbornness is another telltale contrarian signal of imminent market weakness.
From the point of view of contrarian analysis, the most bullish scenario for the next couple of weeks would be for gold timers, at the next sign of market weakness, to give up any of their stubbornly held bullishness and quickly rush for the exits.
In contrast, the contrarian outlook would become even more bearish if the gold timers were to become even more stubbornly bullish in the face of any weakness.
We'll know soon enough. But as of now, contrarian analysis suggests that the gold market is a particularly high-risk bet.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
- ejordan | 12:17 a.m. Today12:17 a.m. Nov. 20, 2009
Friday's warning from Hong Kong's central bank that an asset bubble is looming illustrates a conundrum faced by economies outside the U.S.
11:11 a.m. Today11:11 a.m. Nov. 20, 2009 | Comments: 30
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