Gold Bears Playing Hide-and-Go-Seek

The easiest conclusion to draw with this morning's gap up across the board in the precious metals and miners complex is to note how overbought they are in the short-term. Indeed, observing the gold ETF daily chart, below, we can see that price has been "riding along" the upper Bollinger Band in recent sessions, and is now gapping free and clear above it today, usually a sign of very overbought conditions in the short-term. With this in mind, the temptation would be to then go short the metals and miners to play the overbought conditions being alleviated via a sharp price giveback, as we have seen so many times in recent years during this bear market for the complex. Nonetheless, another consideration is likely adding frustration to the bears' game of hide-and-go-seek in recent weeks, as attempts to short the metals and miners have suddenly been rendered a dangerous action by the market. Specifically, if this is a bear market bottom for the precious metals and miners, meaning one which lasts several quarters, or more, then what we typically see off of that bottom are two conditions:

1. A rally in which even the most ardent of bulls still view with a skeptical eye; perhaps as a mere bear market rally needing to retest recent lows; and
2. A rally which becomes overbought, and then stubbornly stays that way for much longer than seems reasonable or logical.

This is also known as a "lockout rally," in which the market effectively locks out, or keeps sidelined, those who want to be in on the action, while trapping in shorts who are playing for the market to roll back over 'any day now." As I have written before, metals and miners still have much work to do to cement a bear market bottom. But you can see my own trading has been focused on the long side, leading to sizable wins in recent quarters doing just that. A GLD weekly close over $130, for example, would be a major hurdle to clear.  But if we do see the precious complex remain overbought in the coming days and weeks, with even morning gaps-down being bought and flipped green by the closing bell, then you know the tide is turning increasingly by the day in the gold bugs' favor.