Why gold mining stocks could soon surge higher

gld stock
From Alan Farley:
Gold miners are returning to life after a long slumber and could reward gold bugs and other bulls with superior returns in coming months. Sector gains may be widespread, with participation at all capitalization levels and the potential for the strongest components to post six- and seven-year highs. Better yet, there's no rush to get on board because major mining funds are now trading at resistance and could offer more advantageous entries at lower prices. The gold futures contract is trading above $1,350 for the first time since February 2019. More importantly, it has now completed a six-year basing pattern that will set off major buying signals when the uptick lifts above the 2018 high near $1,400, or $130 on SPDR Gold Trust (GLD). (See also: Gold Completes 6-Year Basing Pattern.) However, the breakout could take time to unfold, allowing sector aficionados to place limit orders at lower levels on major funds or their favorite miners.
Chart showing the share price performance of the VanEck Vectors Gold Miners ETF (GDX)
TradingView.com
The VanEck Vectors Gold Miners ETF (GDX) came public in the mid-$30s in May 2006 and entered a narrow trading range, ahead of a 2007 breakout that reached $56.87 in March 2008. It crashed with world markets during the economic collapse, bottoming out at an all-time low in the mid-teens, ahead of a 2009 recovery wave that reached the prior high at yeas end. The fund broke out in the fourth quarter of 2010 and eased into a volatile pattern that posted an all-time high in the upper $60s in September 2011.
A 2012 breakdown signaled the start of a multi-year decline that continued into January 2016's bottom at $12.40. The fund posted exceptionally strong upside into the summer of 2016, more than doubling in price into a three-year high in the lower $30s. Price action since that time has been sandwiched between the 2016 high and low, while the pattern since 2017 has carved a long trendline of slightly lower highs.
The latest bounce has reached this resistance level for the fifth time, raising odds for a breakout at the same time as the underlying commodity. The first upside target lies at the 2016 high, offering a potential 33% profit after a breakout, but the monthly stochastic oscillator has crossed into a sell cycle, predicting that it's too early to buy the fund or popular components. As a result, it makes sense to sit on our hands and wait for lower prices.
Chart showing the share price performance of the VanEck Vectors Junior Gold Miners ETF (GDXJ)
TradingView.com
The VanEck Vectors Junior Gold Miners ETF (GDXJentered the public exchanges at $104 in November 2009 and topped out at $118.76 a month later. It cleared that resistance level in September 2010 and exploded to the upside, posting an all-time high at $179.44 in December. The fund carved a topping pattern into September 2011 and broke down, entering a severe downtrend that yielded a one-for-four reverse stock split in July 2013.
The fund bottomed out at $16.87 in January 2016 and turned sharply higher into August, topping out at a three-year high in the low $50s. Bearish price action since that time has carved a long and lazy series of marginally lower highs and lows that have held above the .618 rally retracement level, keeping the bullish 2016 buying impulse in play. However, unlike GDX, it's hard to draw a trendline of highs that define a narrow breakout level.
The monthly stochastic oscillator shows a more advanced sell cycle than the larger-cap fund and has now dropped into the lower half of the panel. This is a "no buy" zone because it predicts that prices will drop further when the indicator approaches the oversold line. Taken together with the missing trendline, it makes sense to avoid junior miners except for group leaders, at least until the fund mounts the 50-month exponential moving average (EMA) in the mid-$30s.

The Bottom Line

Gold miners have turned higher in sympathy with the gold futures contract and could hit multi-year highs in the coming months.

The VanEck Vectors Gold Miners ETF (GDX) fell $0.01 (-0.04%) in after-hours trading Friday. Year-to-date, GDX has gained 0.39%, versus a 8.83% rise in the benchmark S&P 500 index during the same period. GDX currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #8 of 34 ETFs in the Precious Metals ETFs category.
This article is brought to you courtesy of Investopedia.
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Large Cap ETFs have performed the best in 2019

ETF investing
From John Jagerson:
With few exceptions, most Exchange Traded Funds (ETFs) have done very well so far in 2019. For investors who took advantage of the opportunity in ETFs that follow the S&P 500 or similar large-cap stock indexes, this has rung especially true.

What ETFs have done the best?

As I mentioned, ETFs that track large capitalization stocks like the S&P 500 or Dow Jones Industrial Average have done the best so far in 2019. The ETF that experienced the most growth in total investors was the Vanguard S&P 500 ETF (VOO) that saw investors place another $6.5 billion in the fund over the last 4 months.
Tracking right behind large-cap stock ETFs were those that invest in the stocks of emerging markets (EM) like Brazil, Russia, China and India. This is a little surprising, because investors are still concerned about trade disputes and tariff wars between the U.S. and China. But because EM funds are considered riskier than large cap funds, investors like the fact that they have been rising together. The correlation between risky and "safe" stock funds indicates that there is more strength behind the bull market than if large cap funds had been rising alone.
Adding a little more confidence to the rally is the group of ETFs representing corporate bonds. The outperformance of this group is a little less surprising than EM because investors have been very attracted to the relatively high dividends paid by these ETFs. For example, if you include the value of its dividends, the iShares High Yield Corporate Bond ETF (HYG) is up almost 8.5% this year, which is very good for a bond fund. For comparison, the Bloomberg Barclay's Aggregate Index, which tracks the performance of corporate bonds in the U.S. is only up 2.5% for the year.

The outlook for the top performers in 2019

A preference for large-cap stock and corporate bond ETFs is easier to understand if you know what the U.S. Federal Reserve (the Fed) has been promising about interest rates. If you have been shopping for a mortgage, you probably already know that rates have declined since the end of 2018 and are currently near the same level they were in January of last year.
If interest rates are low, investors tend to favor "income" over growth. Dividends are more valuable while rates are low, and the Fed has promised to resist raising rates again in 2019. Large cap stocks and corporate bonds are sources of income, so investors have favored those funds.
Because economic growth is a little slow right now and the Fed has promised (more or less) not to raise rates again this year, I expect these trends to continue. We may not get another 17% worth of gains in a 90-day period, but I think the preference for income will help large-cap and corporate bond funds outperform.

Which ETFs have done the worst?

The big bullish move in stocks in 2019 indicates that investors were willing to take on more risk and may have oversold the stock market at the end of 2018. Even though funds with large dividends performed well, investors haven't seemed very worried about adding "safety" funds to their portfolio.
For example, if investors start to panic, they will buy funds that track things like gold or U.S. Treasury bonds. These assets don't pay much, if any, income and they aren't usually expected to grow; however, they are usually safer than stocks in a bad market.
The largest ETF that tracks gold-bullion, the SPDR Gold Shares ETF (GLD), is down nearly -1% for the year so far. The largest ETF that tracks long-term U.S. Treasury bonds, the iShares 20+Year Treasury Bond ETF (TLT), is only up a measly +0.67% for the year.
The healthcare sector is another group that tends to do better in a slow market and has been performing poorly this year. In this case, the negative returns from ETFs that track healthcare stocks is more likely the result of political uncertainty around the "Medicare-for-all" ideas promoted by 2020 Democratic presidential candidates than a bullish market.

The outlook for the worst performers in 2019

The poor performance in safety assets like gold and U.S. Treasury bonds tells us something about the market's bias in 2019. If interest rates are low and economic growth is still positive, investors are likely to avoid the most conservative investments. I expect that this trend will continue, as long as there aren't any major economic disruptions later this year. For example, if growth in China and India were to drop suddenly, the safety sectors could get a lot more interest from investors.

Looking ahead

The current trends among ETFs seem likely to continue if economic growth remains positive overall. I have some concerns about whether that situation can be sustained into 2020, but, for 2019, the trends we have seen so far seem likely to continue. Investors should continue to prefer stock funds and higher-risk corporate bonds funds while interest rates remain low.

The Vanguard S&P500 ETF (VOO) rose $0.42 (+0.16%) in after-hours trading Wednesday. Year-to-date, VOO has gained 8.16%. VOO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 157 ETFs in the Large Cap Blend ETFs category.
This article is brought to you courtesy of Investopedia.
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3 big threats for the S&P 500 going forward

s&p 500
From Mark Kolakowski The S&P 500 Index (SPX) tumbled by 1.9% on Friday, March 22, for its biggest one-day percentage loss since Jan. 3.
On the previous day, the widely-followed market barometer registered its highest close since Oct. 9, 2018. Rather than a temporary bout of profit taking, this may represent the beginning of a longer-lasting reversal for stocks, in the opinion of several veteran market strategists.
"The Fed can't be dovish enough to support U.S. equity markets given the acceleration in the global growth slowdown and eventual U.S. slowdown," as Peter Cecchini, global chief market strategist at Cantor Fitzgerald, opined in a recent note to clients quoted by Business Insider. Meanwhile, massive outflows from equity mutual funds indicate that there is "simply no love for stocks," said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, in a report also cited by BI.
Three big threats for stocks going forward are summarized in the table below. The S&P 500 was down fractionally on Monday, by just under 0.1%.
3 Threats That May Spur More Stock Declines
  • Net $20.7 billion redeemed from equity funds in the week ending March 21
  • Inverted yield curve in the U.S.
  • Yields on 10-year government bonds in Germany are now negative
Source: Business Insider

Significance For Investors

An inverted yield curve, in which short-term interest rates are higher than long-term rates, is historically a reliable predictor of an upcoming economic recession. In turn, the onset of a recession, or the anticipation of one, often triggers a bear market in stocks. On Friday, March 22, the U.S. yield curve inverted for the first time since 2007, which was the year in which the last U.S. recession and the last U.S. bear market began.
Leading fund managers across the globe surveyed by Bank of American Merrill Lynch now have their lowest allocation to stocks since Sept. 2016. Moreover, the net weekly outflow of $20.7 billion from equity funds happened before the March 22 plunge in the S&P 500. Whether this has spurred yet more withdrawals will be known when the next report by BofAML is released later this week.
As the largest economy in Europe, Germany is an important bellwether for the developed world. The yields on 10-year German government bonds turned negative for the first time since Oct. 2016, partly the result of declining exports to China, which is in the midst of its own economic slowdown. The impact is likely to extend to the U.S., as investors flee German bonds for U.S. Treasury securities, pushing their prices up and yields down, BI observes.

Looking Ahead

Despite these and other bearish developments, some market participants remain bullish. "We're very comfortable that the back three quarters of the year are going to show improvement over the first quarter," is the opinion of Philip Orlando, chief equity strategist at Federated Investors, in remarks on CNBC.
"I don't think we're going to retest the Christmas Eve bottoms," he asserted, adding, "We would use any weakness as a buying opportunity." He prefers large cap U.S. value stocks, as well as U.S. small cap stocks, and has a price target of 3,100 on the S&P 500, 10.8% above the March 25 close. His worst-case scenario is that the index slips to 2,600, or 7.1% below the March 25 close, if earnings are poor and corporate guidance is pessimistic.

The SPDR S&P 500 ETF Trust (SPY) was trading at $280.74 per share on Tuesday afternoon, up $1.70 (+0.61%). Year-to-date, SPY has gained 5.62%. SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 154 ETFs in the Large Cap Blend ETFs category.
This article is brought to you courtesy of Investopedia.
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long and stacked silver bars
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Index Funds, Where Are We Now? (SPY, AFK, EFA)

portfolioStaying on top of up to the minute news like President Obama’s trip to the G-20 conference or Madonna’s pending adoption of a child from Malawi can distract investors from taking a breather to look back in time in order to get a better direction of where their investments may be headed in the future. Let’s take a look at how a couple of major indexes and index funds have performed since the beginning of the year to determine if your portfolio has the right balance of risk and return.

Focus

ETF

Year to Date

U.S. Dollar PowerShares DB US Dollar Index Bullish (NYSE:UUP)

2.7%

U.S. Equity SPDRS S&P 500 Index (NYSE:SPY)

-7.4%

Technology PowerShares QQQ (Nasdaq:QQQQ)

8.5%

Europe, Australia-Asia iShares MSCI EAFE Index (NYSE:EFA)

-11.5%

Energy United States Oil (NYSE:USO)

-8.7%

Precious Metals iShares Comex Gold Trust (NYSE:IAU)

-1.5%

Fixed Income iShares Barclays 7-10 Year Treasury (NYSE:IEF)

-4.0%

Frontier Markets Market Vectors Africa ETF (NYSE:AFK)

-3.2%

As of market close, April 6, 2009.
When will the correction begin? Everyone wants to know when the economic situation will improve, but the truth is no one knows for certain. The U.S. is ending its first full quarter with President Obama and his administration in office. The call to repair the ailing U.S. economy has been met with the passage of a stimulus package. Time and the ability of businesses to serve existing and push forward into new markets will help drive the eventual economic recovery.  The S&P 500 index, as tracked by the SPDRS S&P 500 Index (NYSE:SPY) fund, has continued to fall downward over the last year; however, this fund did start to rise in recent months as investors moved in to take advantage of low indexes in early March when the Dow Jones Industrial Average fell below 7,000 and the S&P500 went below 700. (For a complete guide, check out our Index Investing Tutorial.) Pullbacks and Producers Gold futures prices, followed by the iShares Comex Gold Trust (NYSE:IAU) fund, have continued to trade just under $900/oz. IAU hit as high as $91.44 on April 1, and since then has dropped about 6% to close April 6 at $85.37. The U.S. dollar index, followed by the PowerShares DB US Dollar Index Bullish (NYSE:UUP) fund, was also up for the year nearly 4% until April, but has seen a slight drop in the last three trading sessions. Investors have sought out these two investments as protectors against the uncertainty in the markets.  Technology has jumped since the beginning of the year as top PowerShares QQQQ (Nasdaq:QQQQ) fund holdings like Apple (Nasdaq:AAPL), Qualcomm (Nasdaq:QCOM) and Google (Nasdaq:GOOG) all continued to trade in positive territory through April 6. Frontier Markets It’s interesting to note the performance of Frontier markets covered by funds like Market Vectors Africa ETF (NYSE:AFK) in comparison to traditional international investments covered by the iShares MSCI EAFE Index (NYSE:EFA) fund. Frontier markets include areas like South Africa, Nigeria and Morocco. Government corruption, hyperinflation and human rights abuses are a part of the story for the emerging economies of the African continent, but it is not the entire picture. Investors with a high-risk tolerance and an extended time horizon may consider doing more research in this region. Final Thoughts The point of this index fund exercise is a reminder to investors to constantly focus on maintaining a diversified portfolio of investments. In addition, investors should also adopt an investment process for rebalancing their holdings by selling a percentage of winning investments and reinvesting those earnings in whatever you deem important or back into the other investments in your portfolio lagging others. (Find out whether these funds can really deliver low-risk returns, read Enhanced Index Funds - Shiny Paper Or Sparkling Gift?) Source:  By Gregory S. Davis   www.investopedia.com
ETF BASIC NEWS April 7, 2009 3:19pm

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