I recently wrote that gold and gold stocks could be setting up for a short-term trading bottom (see A bottom for gold and gold stocks?) and followed up with a post that the market may be seeing a short-term reversal at these levels (see The "Merde" rally?). Now comes another sign that a trade-able bottom in risky assets may be near.
The chart of the gold stock ETF GDX below shows that it experienced an outside day yesterday on high volume, which is an indication that we could be seeing signs of a trend reversal.
While there is still a high degree of headline risk, consensus sentiment is becoming overly bearish, which is contrarian bullish (see Mark Hulbert's article Major correction unlikely), and the stock market is now overpricing tail-risk in Europe. Notwithstanding the problems posed by Greece, the message from the bond markets of France, Italy and Spain is one of relative calm.
Who would you rather believe, the stock market or bond market?
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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