NFTRH; A Breadth (and Seasonal) Study on the Gold Miners

From Sentimentrader (which I recommend for anyone who wants to keep closer tabs on market sentiment and some Quant-like data) comes this interesting study on the gold miners.

The number of GDM/GDX components above their 200 day moving averages just dropped to the lowest level since the spring. It did that immediately prior to the March crash as well after a shorter period.

But that crash was an outlier as everything crashed due to the lack of liquidity caused by the out of left field pandemic event. The period that just ended was the 4th longest ever with more than 70% of miners above their SMA 200 for 6 months or more.

As you can see this is not as bad a sign for the gold miners as it is for ‘normal’ markets. Indeed, in my opinion it is a testament to the volatility of the sector even or especially in bull markets. Below are the results following the four instances. 2016 was an under performer, but as we noted in real time that year the fundamentals were falling apart. Miners are in a bull market today as they were in the other two cases (2006 & 2010). The forward results after similar drops in bullish breadth were positive. Short-term can be touch and go, but longer-term the results were very good.

Relaxing the parameters, ST looked at results after 3 months or more of 70% of miners above the SMA 200. 1994 was a dud, but the bull market years of 2002, 2006, 2010, 2011 and 2019 showed very good forward returns.

Finally, the GDX seasonal average kicks in positive in November and runs through February. We are exiting what is traditionally a tough few months for the miners. It does not mean that 2020 (a year so unlike others) will stick to the average. But I’d rather have this average seasonal data on the miners side than not. That’s for sure.

Bottom Line

While I am going to continue to go by the technicals (best correction target HUI 280, with a chance at 260) the above begs to differ. At the least it portrays the correction as the buying opportunity we have viewed it as all along. True to the 2020 ‘Pogo-stick’ markets, it also puts me on guard to revise my short-term bearish targets if need be.