Fedspeak and NFP's and Bears! Oh My!Friday April 29, 2016 14:53
In hindsight, it was a near lock to short resource stocks going into a Federal Reserve meeting speech by Ben Bernanke and/or the Non-Farm Payroll reports (NFP) as the bear market intensified from 2013 to 2015. It was very easy for big institutional shorts to bully this tiny market and they took full advantage as their computer algorithm trades were set to sell certain resource sector ETFs and shares on particular words or phrases in each Fed meeting speech and NFP release. Since more than 75% of trading is now administered by computer algorithms, small speculators, such as myself, need to check their emotions and wait for some semblance of calm after these highly anticipated market reports are released, and traded upon, to make our investment decisions going forward.
Since the NFP is always released an hour before the market opens on a Friday, the miners (GDX and GDXJ) can easily gap up or down with continuous selling if the jobs number was better than expected. The Federal Reserve did a masterful job of telegraphing higher interest rates that ended up being in the distant future while the institutional shorts decimated the miner shares during the sector bear.
However, on Dec. 16 last year, newly appointed Federal Reserve Chairwoman Janet Yellen finally raised interest rates. The miners were already in the process of putting in a final tax-loss selling capitulation bottom after the worst bear market in 90 years, so this became a “buy the fact” opportunity for long suffering resource investors. The December NFP following the first rate hike since June 2006 was released on January 8th of this year. In just seven trading days later on January 19th, the miners set an epic bear trap that whipsawed bears and GDX GDXJ are still climbing more than 3 months later. These miner ETF’s have doubled and are yet to correct by even 20%, or have a 3 consecutive day decline, which is considered routine for this sector.
The Federal Reserve meeting speeches and NFP’s that have followed have been buying opportunities since this “buy the fact” event of the first long anticipated rate hike from the Federal Reserve happened last December. It is my belief that the big money institutional short computer based algorithm-less sector can now continue to mean revert to the price of gold while quality miners should continue to be bought on weakness and held until this new bull has matured.
The next Federal Reserve meeting will be April 26 and 27 -- with the statement released at 2 p.m. April 27 -- while the next NFP report (for April) will be released at 8:30am EDT on May 6. If weakness precedes these events it may prove to be another buying opportunity as this new resource share bull market continues.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."