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Mark Hulbert
May 11, 2011, 12:01 a.m. EDT
LAS VEGAS, N.V. (MarketWatch) -- They are in denial no longer.
The "they" are the gold timers I monitor. The last time I wrote about them, just one week ago, I wrote that they were in denial, having for the most part stubbornly held on to their bullishness despite a breathtaking drop that caused an ounce of bullion to lose nearly one hundred dollars. ( Read May 5 commentary. )
/quotes/comstock/21e!f:gc\m11 GCM11 1,500.00, -16.90, -1.11%
That they have finally rushed for the exits increases the likelihood that some sort of trading bottom has been formed in the gold market.
How enduring that bottom turns out to be, however, is still in doubt, since it will be determined in no small measure by how those erstwhile bulls react in coming days.
Consider the average recommended gold market exposure among a subset of the gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). Just a week ago this average stood t 73.7%, one of the highest readings for this index in several years.
Today, in contrast, it stands at just 7.0%.
This sixty-seven percentage-point reduction in a week's time is impressive, and most definitely enough to get the attention of contrarian analysts.
The rally occasioned by this big drop appears to be already underway, with bullion rising $23 over the first two days of this week. Here are the sentiment signs to be on the lookout for in coming days for clues whether this rally has good odds of propelling gold above its previous all-time high "” set less than two weeks ago.
On the one hand, it would be a good sign if the gold timers were to only reluctantly jump back on the bullish bandwagon. That would suggest that the recent rout in the gold market had built up a strong wall of worry that the rally could climb.
On the other hand, it would be a bad sign if that wall of worry disintegrates as quickly as it was built. That would suggest that the gold timers haven't really thrown in the towel on bullion's bull market "” and would increase the odds that a more serious correction is needed to create the sentiment foundation for a more sustainable rally.
It's too early to know for sure.
But an encouraging straw in the wind is that the HGNSI has declined slightly over the last two days, despite gold's increase.
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About Mark HulbertMark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
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