Wednesday’s FOMC fun can be wrapped up in just a few words: low and slow, and lower for longer.
Of course, this refers to the pace at which the Federal Reserve is expected to raise rates, based on what Janet Yellen laid out in her press conference following the FOMC statement yesterday afternoon. As a result, we now see Fed fund futures pricing in a 22% chance of a September rate hike, and a 0% chance of a hike in July.
In other words, the Fed stays with its data-dependency mode. Still, Yellen said “a rate hike is certainly possible this year.”
The major cross-asset price reaction on the back of this on Wednesday was as follows: dollar down, rates down, stocks holding up.
One effect of the declining dollar on Wednesday was a rally in commodities, including gold and commodity-related stocks such as gold miners. Wednesday’s move in the Market Vectors Gold Miners ETF (NYSEARCA:GDX) was notable and may have been the beginning of a longer-lasting rally.
Before looking at the charts of the GDX ETF, though, it is notable that the price of gold itself — represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD) — has a strong tendency to find important bottoms in the summertime. And with the price of gold and gold mining stocks fairly closely correlated, this is something to keep in mind as we go through the following charts.
GDX Charts
First up, looking at the GDX ETF in relative terms (i.e., as a ratio chart) versus the GLD ETF, we see that gold mining stocks, after showing relative weakness for years, have been showing relative strength since late 2014, as the higher lows with the green arrows point out.
Next, on the multiyear weekly chart, we see that in 2014, the recent multiyear bear market in the GDX ETF brought it down near its 2008 lows, which at the very least is a good reference support zone (blue box). Further, while price continued to drop into November 2014, on this weekly chart, momentum bottomed in spring 2013 and has since formed a series of higher lows, thus flashing positive divergence that I take to be a bullish sign.
Finally, on the daily chart, we see that Wednesday’s 2.89% post-FOMC bounce in the GDX ETF, which came on good volume, took place right at the uptrending support line that stretches back to the November 2014 lows.
While one day does not make a trend, it also is worth noting that Wednesday’s price action resulted in a bullish outside day that fully engulfed the previous four trading days and also pushed the ETF out of a falling wedge pattern (black lines).
Active investors and traders could try to buy GDX in the high $18s, versus Wednesday’s intraday lows for a move back toward $20, for now. Any bearish reversal of Wednesday’s price action would quickly call off the near-term bullish construct and call for more consolidation time for the gold miners.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
