Sentiment Speaks: Gold May Stretch Its Legs One More Time Before It Takes A 'Nap'

There are so many bulls in the metals complex that it is getting quite crowded.

Oftentimes, when a market becomes to bullish, we see a pullback to reset sentiment.

There is a set up I am tracking, which may suggest another extension can be seen before the metals pull back.

I am seriously amazed at how bullish the metals market has become. Everyone and their grandmother are now calling for a rally back to the all-time highs. I am even seeing analysts I have never heard about or seen before popping up and writing about the "bull market" in gold.

In fact, as I have written several public articles, many commenters are also posting about how certain they are that the metals bull market has returned. And, when everyone is this bullish, it certainly does concern me.

So, yes, sentiment seems to be getting quite frothy. And, while I initially expected that gold may take a rest to re-set sentiment, the action I have seen this week may suggest otherwise.

For those following my work, you would know that I correctly called for gold (NYSEARCA:GLD) to "skyrocket" several months ago. My initial target was the 138 region, followed by the 144-148 region.

Earlier this week, I published an article which suggested that gold can take a rest once we move up into the 144-148 region. And, this week, we struck a pre-market high on Monday at 144.71 before we saw a strong reaction to the downside.

While my initial expectation was for gold to take a rest once this region was struck, I am seeing a pattern developing in the GDX (NYSEARCA:GDX), which could suggest that the metals complex may stretch its legs some more before we see that rest I expect.

Most specifically, we have the 26.90 level below as main support. As long as we hold over that support, and then break out over the 30 region, we have a structure that can point us up towards the 34 region and rather quickly. And, should we break out over 30, then we will adjust our stops based upon the market structure with which we break out over that region.

So, while I still expect that we will see a multi-week, or even a multi-month, "rest" within the metals complex, we often see extensions develop before that happens. Currently, the market may be taking that opportunity, and I have provided you the parameters we are watching.

However, should GDX see a sustained break of 26.90, then it would likely mean that the "rest" I expected has begun.

So, stay on your toes over the coming week. Ultimately, I believe that the metals complex is due a period of pullback/consolidation before we do head higher. But, with this potential extension setting up, I may have to put off a posture of near term bearishness a bit longer. It will all depend on how the market shakes out in the coming few days.

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Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a short term hedge in place, with stops.