Gold and gold mining stocks

Second verse, same as the first!
That’s the best way to describe yesterday’s broad market action, as the major
indices again drifted sideways in a tight holding pattern ahead of today’s FOMC
announcement on interest rates. The S&P 500
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lost 0.1%, while the
Nasdaq Composite
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edged 0.1% higher. The Dow Jones Industrial Average
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  fell 0.3%, but both the small-cap Russell 2000 and S&P Midcap
400 indices were unchanged. Overall, yesterday was a rather lethargic session
that saw the S&P 500 oscillate in a trading range of less than five points.
Later in this article, I’ll talk about gold stocks and gold mining stocks.

As we often see ahead of Fed announcements, turnover declined
in both exchanges. Total volume in the NYSE declined by 12%, while volume in the
Nasdaq was 1% lower than the previous day’s level. It was the sixth straight day
of lighter than average volume in the NYSE, which makes sense considering that
stocks have been stuck in a tight range during that period. Confirming
yesterday’s mixed price action, market internals were mixed as well. In the
NYSE, declining volume marginally exceeded advancing volume, but the ratio was
positive by approximately 3 to 2 in the Nasdaq.

Gold Mining

In the March 24 issue of
The Wagner Daily,
we pointed out that the Gold Mining Index
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had closed just above
resistance of its daily downtrend line and was positioned for further upside.
Unlike many other industry sectors that have only chopped around over the past
several days, the gold mining index ($GOX) actually followed-through with
further gains. Over the past two sessions, the index has cruised 6.9% higher
while the rest of the broad market has done nothing. The $GOX also closed
yesterday above its 50-day moving average for the first time since March 3. Take
a look:

After such a strong move in a two-day period, we would not be
surprised to see the gold and gold mining stocks consolidate for a few days, but
odds are now even greater that the $GOX index will at least rally back up to
test resistance of its prior all-time high. We would consider buying the
strongest gold stocks on any retracement of the $GOX index down to support of
its 50-day moving average. A subsequent breakout above the high of a multi-day
consolidation would be equally buyable. The Gold Trust ETF (GLD) has also been
showing strength over the past several days, but its chart is a bit sloppier
than many of the individual gold mining stocks, so it may be a better bet to
hold a small basket of gold mining stocks as opposed to the ETF that tracks the
price of spot gold.

Each of the major indices closed yesterday within their
respective trading ranges of the prior day’s session. As such, the same support
and resistance levels we illustrated in yesterday’s
Wagner Daily
remain valid going into today. Obviously, all eyes will be on the Federal
Reserve Board’s announcement on interest rates at 2:15 pm EST today. While most
of Wall Street is already expecting another quarter-point rate hike, it is the
tone of the wording that may provoke a reaction in the stock market.
Remember this is the first FOMC meeting since Fed Chief Bernanke replaced
Greenspan, so any number of surprises is possible. As always, don’t get caught
up in your interpretation of the announcement as being positive or negative
because the only thing that really matters is the market’s reaction. We
recommend you review yesterday’s newsletter in order to make note of the pivotal
support and resistance levels that the major indices may test on any strong
reaction to the Fed announcement.

Open ETF positions:

Short EWZ, IGW, and IWM (regular subscribers to

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Deron Wagner is the head trader of Morpheus Capital
Hedge Fund and founder of Morpheus Trading Group (,
which he launched in 2001. Wagner appears on his best-selling video, Sector
Trading Strategies (Marketplace Books, June 2002), and is co-author of both The
Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader
(McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and
Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and
financial conferences around the world. For a free trial to the full version of
The Wagner Daily or to learn about Deron’s other services, visit or send an e-mail
to .