Go for gold as stocks surge
Equities rise out of a multi-month trading range as investors focus on metals.
It seems the stock market's multi-month funk is finally ending on a combination of central bank stimulus hopes, a better-than-expected payroll report and word that beleaguered brokerage Knight Capital (KCG) has received access to capital and will live to fight after Wednesday's disastrous computer trading system malfunction.
The NYSE Composite is on track to challenge highs hit earlier this year. I've been saying for weeks that this was a perfect time for greed, not fear, as investors have pulled cash out of the market. Now the upside is happening. Here's how to play it, with a focus on gold and silver.
Everywhere you look, haven assets are pulling back while risky assets are surging. Treasury bonds are suffering as the iShares 20+ Year Treasury (TLT) threatens to fall below its 50-day moving average for the first time since March. The Japanese yen and the U.S. dollar are under pressure. The CBOE Volatility Index, Wall Street's fear gauge, has returned to its mid-July lows as options traders worry less and less about downside risk.
On the other hand, cyclical, economically sensitive stocks are moving higher relative to the overall market. The euro is rebounding. Breadth is strong as a wide swath of the market participates in the move higher. And inflation expectations, a proxy for growth expectations, are blasting higher at a rate not seen since January.
I've been telling my readers and newsletter subscribers to focus on gold, silver and the related mining stocks, and I still think they are the first areas investors should focus on.
The bulls showed their hand during the market pullbacks Wednesday and Thursday when, in the wake of initial disappointment over the Federal Reserve and European Central Bank policy announcements, gold and silver pulled back while small, nimble mining stocks were buoyant.
This was a sign buyers were quietly building positions in the area, represented by the Market Vectors Junior Gold Miners (GDXJ). Now the GDXJ and the stocks it is exposed to are poised to move out of a long downtrend in a big way. I'm adding GDXJ to my Edge Letter Sample Portfolio as a result, combining it with existing precious metals exposure, including the VelocityShares 3x Silver (USLV), Endeavour Silver (EXK), and First Majestic Silver (AG).
Disclosure: Anthony has recommended GDXJ, USLV, and AG to his newsletter subscribers.
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at firstname.lastname@example.org and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
I love the stock market but I don’t understand it.
The unemployment went from 8.2% to 8.3%, the software systems trading our stocks are worthless, Europe is in the verge of collapse, and USA posted a increase of few thousands employees (with millions unemployed) and we are celebrating. Celebrating what! Yes, I don’t get it. I love it.
But the central banks stimulus action did not happen. Hope is now that action would happen in a month or so. Plenty of time for the Greek Crisis to flair up again, for European governments to show their discord again, for some bad economic news, for more bad reports.
If it was not for this better than unexpected payroll report, the NYA would have been on his way down to 7650 or the DJIA to 12650. Now isn't that good piece of news compromising the hope for more stimulus from the fed in a month or so ? If things are getting better why stimulate more ? If things are not really better why this current bounce last ?
Maybe the more volatile GDXJ is breaking up, but GDX has not done so. The lows of GLD (gold) are pointing slightly upward when its highs are flat or pointing slightly downward. We are in the middle of the range. Direction is not clear. The same for SLV (silver) where the highs point only downward. Here mid May to mid June showed indeed a frankly upward series of lows, but it finished into a big step down by the end of June (USLV fell by 20%). So current direction for silver is also not clear.
I am going to wait until those other indicators turn clearer, and see if that 1 day bounce has legs.
"has received access to capital and will live to fight again "
Tony I think you meant will 'live to spectacularly screw up again"
where could someone dump a lot of oil and gold stocks?
to the wall streeters/ let them have it, they seem to want to make it go up so bad.
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