A Bounce For Precious Metals?

During the rally out of the late June low, the gold ETF I track (GLD) has had confirmation from sentiment generated from the Twitter stream. Smoothed sentiment has had a good uptrend that has held on dips. It’s currently coming back to the trend line and attempting to turn up even as price has fallen over the past few days. This is a good sign, but GLD needs to bounce right here or there will be a high probability for a resumption of the down trend. Another factor that may bring heavy selling if a bounce doesn’t materialize is that GLD is sitting right on its 50 day exponential moving average. A break below that level will almost certainly trigger some stops.

The gold shares ETF that I track (GDX) has a stronger sentiment pattern than GLD. Smoothed sentiment had a large positive divergence from the hard break down in price in April to the break down in June. Since that time sentiment has held its upward sloping (and confirming) trend line on each dip. It’s back to trend and turning up. Like GLD, GDX needs a bounce here we’ll most likely see heavy selling and a resumption of the long term down trend.

Twitter sentiment for Randgold Resources (GOLD) issued a sell signal on 8/26/13 when its uptrend line was broken after diverging from price for over three weeks. This break in sentiment among traders on Twitter came right at the 200 day moving average of price. Since that time sentiment hasn’t been strong and is still confirming the move lower. This is our first warning that the down trend might resume. Another warning is that GOLD and Newmont Mining (NEM) are both near the top of the list of the most bearish stocks on Twitter.

Silver (SLV) has broken the confirming trend line from Twitter sentiment that has been in place since the rally began. Smoothed sentiment for SLV is now below zero as well. This is another indication that there might be trouble ahead.

Bottom line, precious metals need a bounce right here or we’re probably seeing the resumption of the longer term down trend.