Wednesday, March 25, 2009

GDX Leads The Way

Top Line: The stock market gave bulls some concerns after a big rally failed. With the rally into the close, it is possible the correction is over. We are looking for a strong market coming out of today's trading.

[Editor's note: There will likely not be a Thursday post this week. The next post will be Sunday evening. Happy Trading.]

The market created a possible pattern that allows for a continuation of the recent rally. This pattern is not perfect but does represent a good chance that the next up phase is about to begin or did begin on Wednesday afternoon. We will know more as trading begins on Thursday but the overnight futures are up enough to give us some encouragement.

One of the stocks, funds, we have been following, GDX, turned in an interesting performance today as well. This stock has been in the front of this market leading it up starting way back in October when it was one of the first stocks to bottom. Since then it has more than doubled and today closed at its highest level since that October low.

This move is significant because gold itself is not at a new high for the move. We generally say that the mining stocks lead the precious metals so with today's new relative high in the GDX we expect gold to follow suit and rally. In the mean time, GDX should continue its recent run and maybe get over 40 soon.

Over in the Treasury bond world, yesterday's "positive" news that the Fed was about to buy some 10 year Treasury bonds didn't help the bond market today as Treasuries fell (rates rose) all across the curve. This was Not a good day for bonds even though the Fed purchased more than they were expected to buy at $7.5 billion. A 40 year auction the in UK only produced bids for 93% of bonds offered.

These tidbits support our position that rates are going up and soon. We recommended refinancing your mortgage after last week's announcement by the Fed to buy up $1 trillion worth of long bonds and mortgages. That news popped the bonds hard and fast but they settled back down soon after. Then yesterday the Fed popped the bonds again with their announcement that they would begin their purchased today. Yesterday the bonds got a pop but not today. Rates are headed higher...good for us savers. We think these news items are glaring and important for the direction of bonds...down as we see it, with rates on the way up.

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