Watch the action in the gold stocks following this week’s FOMC announcement on interest rates.

If the sector declines after Wednesday’s announcement, then we may finally get a chance to buy back into the gold stocks.

We turned cautious, maybe even bearish, on the gold sector nearly two months ago. The VanEck Vectors Gold Miners Fund (GDX) has fallen about 8% since then.

But, the fundamental reasons to be invested in the gold stocks are as bullish as ever.

The sector is likely headed much higher over the long-term. So, I’ve been anxiously waiting for a chance to aggressively buy back into positions.

It still seems a bit too soon.

Here’s an updated look at the Bullish Percent Index for the gold sector (BPGDM) that we looked at last month…

The BPGDM measures the percentage of gold stocks that are trading in a bullish technical formation.

It’s a gauge of overbought and oversold conditions. Since it’s measured as a percentage, a bullish percent index can only reach as high as 100% or fall as low as zero.

Typically, a sector is extremely overbought when its bullish percent index rallies above 80%. It’s extremely oversold when it drops below 30%.

The BPGDM has been stuck in neutral – at 53.57 – for the past three weeks. Similarly, shares of GDX were trading near $31 three weeks ago. And, they’re trading near that same level today.

As I mentioned last month, the BPGDM never reached 80 before it reversed lower in May. It never, technically, generated a sell signal. So, it may not need to, technically, generate a buy signal by declining below 30 before reversing higher.

But, the BPGDM still needs to work a bit lower before we can say that it’s “safe” to venture back into the gold sector.

Conditions are neither overbought nor oversold in the gold sector right now… Conditions are neutral.

The best time to buy gold stocks is when they are oversold, or at least approaching oversold levels.

So, the BPGDM needs to dip closer to 40, or perhaps 35, before I’m willing to add exposure to the gold sector.

Let’s keep an eye on the chart of BPGDM this week – especially after Wednesday’s FOMC announcement.

That announcement may provide the catalyst for another move lower in the gold stocks.

And, that move may finally create the sort of conditions that make it attractive to buy the gold stocks again.

Best regards and good trading,

Jeff Clark

Source: Jeff Clark Trader