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Steve's note: I've never seen anyone trade gold and silver stocks as well as my colleague Jeff Clark. In today's essay, he's finally revealing how he does it...

My Secret Gold Stock Timing System

By Jeff Clark, editor, Advanced Income
Saturday, February 13, 2010

Right now is the best time in a year to buy into the precious metal sector. 

My long-time readers know I rarely buy gold stocks. Because of the long-term bull market in gold, these stocks get very popular with the public in a hurry. Gold stock investors are a highly emotional bunch, and they'll change direction more often than a pair of squirrels on the highway. Follow the crowd, and you'll get run over. 

But follow my advice in today's essay, and you'll always make money trading gold stocks. 

The trick is to avoid buying gold stocks when they're running higher and when everyone else is rushing into the sector. You want to buy into the sector when the stocks are oversold and everyone else is jumping out of them. 

This strategy has produced a pretty good track record. As I mentioned, I rarely buy gold stocks. But the last six times readers of Advanced Income(my income-focused trading advisory) have bought them, they've made money... with safe, fast gains ranging from 15% to 110%. 

The strategy? Just follow the single best gold stock timing indicator in the world: the gold stock sector's bullish percent index (BPI). 

A BPI is a momentum-based indicator that measures overbought and oversold conditions. It shows us when gold stocks may be ready to snap back in direction, both up and down. 

Most sectors are overbought when the bullish percent index rises above 80. This is a warning sign the upside move is stretched and may need a pause. Stocks are oversold when the BPI drops below 30. This usually occurs near the end of a downside move. 

Oversold and overbought conditions are not, by themselves, reasons to buy or sell stocks. Oversold conditions can get more oversold just as overbought conditions can get even more overbought. Trading signals occur when the BPI reaches an extreme level, then starts to move back in the other direction... when a sector's extreme move has lost its momentum. 

These extreme "buy gold stock" readings don't flash often. But one is flashing right now. Here's the current overbought/oversold BPI reading for gold stocks: 

JOE says things are a little "less bad" in U.S. real estate

As you can see, gold stocks haven't been this oversold since late 2008. This was an extraordinary time to buy gold stocks. Just after the extreme reading back then, the big gold stock ETF doubled in price in four months. Some of my favorite silver stocks tripled in price in just months. My readers were along for the ride. 

If you do nothing but follow these overbought/oversold gold stock readings, you'll do far better in gold stocks than most folks ever will. You're either a contrarian with these stocks... or you're giving your money to those of us who are. 

Best regards and good trading, 

Jeff Clark 

P.S. Over the years, I added a small tweak to my gold stock timing system that ensures I get in at exactly the right time. It's been one of the biggest sources of trading profits of my career. To follow along – and learn about the extreme opportunity we have right now – consider coming on board as anAdvanced Income subscriber. You can learn more here

Market Notes


Our chart of the week displays an asset we consider one of the best barometers of the U.S. real estate market... a share of stock in St. Joe Company (JOE). 

St. Joe is a huge real estate developer. With nearly 600,000 acres of Florida land, it's one of the largest private landowners in the country... so its share price tends to rise and fall with investor sentiment toward U.S. real estate. 

As you'd expect, shares have done a lot more "falling" than "rising" in the past several years. JOE fell more than 80% from mid-2005 to last year's market bottom. But over the past year, JOE has put together a series of higher highs and higher lows. JOE's "California cousin,"Tejon Ranch (TRC), sports a similar uptrend. 

JOE's new recovery is no cause to expect rising real estate prices. It's simply a sign things are "less bad" in real estate than they were a few years ago. 

– Brian Hunt

In The Daily Crux

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