Yesterday, the Federal Reserve announced that it would begin to pair back its bond buying program, doing it so slowly that the operation won’t end till next June. The market rallied on that news, as that means the easy money, while the inflation rate is higher than GDP growth, is just going to continue. One thing I have mentioned recently is the fact that the Russell 2000 had been trading in a very narrow range, with its 200-day Bollinger Bands tightening. The bands got so tight, that they hardly ever get this close together.
I didn’t have an opinion on whether the Russell 2000 was going to end up breaking out or breaking down. It could have gone either way to me, but it was going to make a move before December. Well, yesterday it rallied and broke out to the upside.
When the 200-day Bollinger Bands get this narrow and there is a breakout you typically see a move that lasts for weeks and not just a few days. Even if market internals remain sluggish the market averages are likely to continue to trade with a sideways to upward trend through the rest of this year, without a major top being made.
Interestingly, gold dipped on the FOMC news, but gold stocks and the GDX turned up. This looks like a buy point for them too with this chart.
I own a position in GDX in my IRA. One could buy it and put a stop below $31.00 for a trade. Also, check out my top stock pick for this month as it’s a small cap gold and copper stock. For the info on it click here.
In case you missed it I did this interview on Tuesday.
-Mike
