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Friday's Selling Suggests that Overbought Stock Pullback has Probably Begun

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With gold surging again today to another seven-year high, gold miners are having an even stronger day percentage-wise. And are nearing a major upside breakout. Chart 1 shows the VanEck Gold Miners ETF (GDX) trading 3% higher today and nearing a challenge of its early September peak. A close above that high would put the GDX at the highest level in more than three years. An upside breakout is likely with gold leading the way. The GDX/SPX ratio in the upper box appears to be bottoming as well. The recent big buying of gold assets is largely due to the plunge in Treasury bond yields which fell today to lowest level since September. And a flight to safety into Treasury bonds; and defensive stock market sectors like consumer staples, utilities, and REITS.

At the same time, stocks closely tied to the coronavirus like airlines, cruise ships, gaming, and hotels are coming under renewed selling at week's end which suggests that the viral threat to stocks still remains. Technology has gone from the market's strongest sector to its weakest over the past week. That makes sense considering that technology stocks are the most overbought market sector; making them the most vulnerable to a market pullback. Semiconductor stocks heavily influenced by disrupted supply chains in China are leading the tech SPDR lower.

Chart 1



Editor's Note: This is an excerpt of an article that was originally published in John Murphy's Market Message on Friday, February 21st at 3:20pm ET. Click here to read the full article, which includes Charts 2-3.

John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More
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