Yesterday the stock market fell as the Nasdaq fell 68 points and the price of gold dropped down towards $1930 an ounce. After the close much of the media blamed these drops on minutes released by the Federal Reserve of its July meetings. In the minutes Fed officials displayed worries about the economy and some members had doubts about whether or not “yield control” policies should now be implemented.
This has been the rumored to come policy that the Federal Reserve would buy Treasury bonds of all durations in order to keep yields low in the face of a lack of buyers in the bond market. The Federal Reserve already announced unlimited QE so this would simply be the implementation of it..
The threat of this policy is one of the factors driving gold prices higher.
Instead of jumping soon in “yield control” the minutes showed that some members want to simply present inflation targets instead. This is something that has been rumored to be in the works for the September meeting.
But regardless all of this talk supposedly hit stocks and gold yesterday. I guess the thinking is gold people want to see this happen NOW. Every day of market action has to be pinned on something.
Yet really as I have been writing for the past two weeks gold, silver, and big cap mining stocks are in a consolidation phase that is likely to go on for the rest of this month with jumps up and down. The surprises will come to the upside as we saw with Barrick Gold and Warren Buffett on Monday, because the overall trend is up.
The thing to focus on is not daily gyrations and daily news, but the overall trends and when something is trading well above its 200-day moving average you are in a bull market. In bull markets you get periods of consolidation and sometimes even sharp pullbacks, but they must be understood to be playing out in context of a big trend.
The thing to do is use such times as now as buying opportunities. Take a look at my top stock pick for this month as it is a stock that barely dropped yesterday even though the GDX gold stock ETF was down more than 3% and neither did small cap mining stock Aftermath Silver.
You can’t figure out what is going to happen with everything in the financial markets and what I am wondering about now is what is going to happen with the zombie stocks – these are stocks of companies that now have so much debt that all they can do is use their revenue stream to stay alive. They can’t innovate or expand and many are relying on more debt to pay off old debts. Sadly this is now the story of 20% of corporate America now.
These stocks soared in April and then peaked in early July and have been lagging the stock market ever since drifting.
This is the story for stocks of the REIT arena owning empty offices and shopping malls, retail chains, airlines, and things like cruise lines. Take a look at the widely owned (at least on Robinood) cruise line stock NCLH.
There are so many stocks that look like this in the market now that it will probably take them breaking out through their July high resistance points to get the stock market to rally much more, because the big cap tech stocks still remain very overbought. If that doesn’t happen then the market probably will just start to drift on very low volatility and volume for the next several weeks not doing much.
The real fun action still remains in small cap mining stocks in my mind. You really can’t beat them. The reason they work so well is because the bull market in gold and silver is so explosive with both outperforming the S&P 500. The goal in stock trading is to beat the market and you beat the market by being in what is beating the market!
If you are new to these concepts then grab my book Strategic Stock Trading available on Amazon.com.
-Mike
