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The Only Gold You Should Buy Today

By Jeff Clark
Thursday, August 25, 2011

Gold has captured all the headlines. Daily price moves of up to $100 an ounce will do that. But while wild gyrations make for interesting news stories, they rarely make for good investing environments...
 
Gold is going to need some time to calm down and digest these moves. As I warned last week, we'll probably have a better gold buying opportunity a few months down the road.
 
So forget about the shiny, yellow metal for now. The only gold you should be buying today is the black stuff...
 
Oil – otherwise known as black gold – has had a lousy summer. It peaked in May just shy of $120 per barrel. And now, it's trading at $85 – a loss of 30%. Oil stocks have fared just as poorly. The AMEX oil index (XOI) is also trading about 30% below its early May peak.
 
None of this surprises us. We knew the oil sector was overheating a few months ago, and we cautioned anyone interested in buying oil stocks to wait for a better time.
 
Well... now is that better time.
 
The bullish percent index for the energy sector (BPENER) dropped to ridiculously oversold levels during the stock market meltdown two weeks ago. It has now turned up from those levels... and signaled it's time to buy into the energy space. Take a look...
 
 
 
A bullish percent index (BPI) measures the percentage of stocks in a sector that are trading with bullish technical patterns. It's designed to measure overbought and oversold conditions. An index is overbought when it registers above 80 – meaning 80% of the stocks in the sector are trading with bullish patterns. An index is oversold when it drops below 30.
 
Two weeks ago, during the height of the recent stock market panic, BPENER dropped to near 2. In other words, only 2% of the stocks in the energy sector were trading with bullish setups.
 
That's more oversold than the sector has been in the past 2.5 years. In fact, it's almost mathematically impossible to get more oversold than that.
 
Of course, just because a sector is oversold doesn't necessarily make it a good candidate for buying. Oversold stocks can get even more oversold. So it's usually best to wait for the bullish percent index to turn higher and signal a change in momentum before jumping into an oversold sector. We got that turn earlier this week.
 
The blue arrows on the chart above point to each time in the past 2.5 years the BPENER dropped to oversold levels and then turned higher. In each of the three previous cases, the AMEX oil index was 15%-20% higher within two months of the signal. I expect we'll see something similar this time.
 
Of course, there's no guarantee that history will repeat itself this time. But one thing is certain...
 
If you were anxious to buy oil stocks at peak prices back in May, today's bargain levels offer a much better deal.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

 
"One of the biggest trends going today, and one that will last for decades, is the boom in finding large 'unconventional' natural gas fields," commodities expert Matt Badiali writes. He sees unlimited potential in this new method of oil exploration. So if you want a booming commodity investment, start here.
 
Frank Curzio agrees this new method is a major driver in the growth of the energy sector. "But there's more to the story than that," he says. "And I expect these two factors to propel the oil services uptrend for years..." See what he's talking about here: Two More Reasons to Buy This Booming Energy Sector.
 

In The Daily Crux
Market Notes
Fear index VIX touches lowest level in a week... still up about 100% over the past month.
 
Natural gas engine maker Westport is up 20% over the past six months, while the S&P 500 falls more than 10%.
 
China Unicom and China Mobile are both in positive territory this year… despite a 15% drop in China's Hang Seng index.
 
McDonald's tops a short list of fresh 52-week highs.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1177.60 +1.3% +12.0%
Oil (USO) 33.08 -1.0% +4.1%
Gold (GLD) 171.65 -3.4% +42.6%
Silver (SLV) 38.83 -4.4% +115.8%
U.S. Dollar 73.85 -0.4% -11.4%
Euro 1.44 -0.1% +14.2%
Volatility (^VIX) 35.90 -1.0% +30.7%
Gold Stocks (^HUI) 571.02 -2.2% +24.7%
10-Year Yield 2.26 +5.6% -9.6%

World ETFs
Symbol Price
Change
52-Wk
Canada (EWC) 28.76 +0.5% +15.1%
S. Africa (EZA) 63.98 -0.5% +14.3%
USA (SPY) 118.08 +1.4% +14.1%
S. Korea (EWY) 52.65 -0.9% +9.9%
Taiwan (EWT) 13.38 -1.0% +9.2%
Singapore (EWS) 12.48 -1.6% +8.6%
Israel (ISL) 14.79 +0.7% +3.2%
Japan (EWJ) 9.52 -1.1% +2.4%
Lat.America (ILF) 44.62 -0.7% +2.1%
Russia (TRF) 17.91 +0.3% +0.8%
China (FXI) 36.88 -1.2% -4.9%
India (IFN) 26.20 -2.0% -12.0%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service (OIH) 124.73 +0.6% +27.6%
Internet (HHH) 69.84 +0.0% +25.8%
Retail (PMR) 18.98 +1.8% +22.8%
Big Tech (QQQQ) 52.69 +0.8% +21.7%
Consumer Svcs (IYC) 65.71 +1.4% +20.7%
Basic Mat (IYM) 66.32 +1.4% +17.9%
Health Care (IYH) 66.65 +1.1% +16.4%
Big Pharma (PPH) 66.43 +1.1% +15.1%
Media (PBS) 12.52 +1.9% +14.8%
Real Estate (IYR) 55.01 +1.1% +14.6%
Utilities (XLU) 33.60 +2.2% +14.1%
Telecom (IYZ) 21.85 +1.4% +13.3%
Industrials (IYJ) 57.90 +1.9% +12.9%
Water (PHO) 16.39 +2.2% +12.8%
Semis (PSI) 13.20 -0.5% +12.2%
Transportation (IYT) 79.86 +1.5% +9.4%
Defense (PPA) 16.76 +2.0% +7.2%
Biotech (PBE) 18.81 +1.5% +7.1%
Software (PSJ) 21.61 +1.6% +6.2%
Construction (PKB) 10.85 +3.1% +4.9%
Insurance (PIC) 13.94 +1.4% +0.8%
Financials (IYF) 47.51 +2.5% -1.5%
Nanotech (PXN) 6.95 +0.0% -11.8%
Alt. Energy (PBW) 6.88 +0.0% -17.7%

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