Monday, December 06, 2010

Gold and Silver Shine as Small Cap Stocks Lead Stocks

Bernanke’s interview on 60 minutes spark fear over his handling monetary policy

Gold and silver soar after Bernanke’s 60 minutes interview on Sunday night. Stocks consolidated nicely with the Russell 2000 index leading the way finishing higher by 4.44 (+.59) points. Volume was lower across the board, but Monday’s have become light volume affairs. Without economic news stocks moved lower during the morning and gained traction just after noon time. Only late day selling put a negative spin on the day, but with market leaders pushing higher the close was only a blip on the day. The markets consolidated nicely with market leaders pushing higher and our accounts higher.

Bernanke continues to push his loose monetary policy forced investors to gold and silver. The moves in the precious metals are an indication the market does not trust Ben Bernanke handling monetary policy. Gold and silver have been a measure of “money” for thousands of years, it has real history. The dollar is in effect a paper currency and is being devalued by the Fed’s loose monetary policy. It really boils down to the Government running surpluses and the Fed tightening monetary policy before gold and sliver stop their run.

Small cap stocks are taking the lead and this observation is a positive sign for the market. When small caps lead it signals risk adversion is taking a back seat and traders are willing to pay up for stock. When large cap stocks lead, the Dow and S&P 500 is a sign the market is getting tired. We saw this in October and November of 2007. In addition, with the NASDAQ showing positive signs and the Russell 2000 leading this market is poised to continue its run.

Not much in the way of economic news out this week and the headlines will certainly be pointed to the Jobless claim figures on Thrusday. In addition, the EURUSD will continue to be a cross currency rate to watch as the market has traded in concert with the rate. At some point the market will break the correlation, but for now they appear to be trading in tandem.

IBD went back into rally mode last week. They used the Dow Jones Industrial Average to turn the market in correction mode. As it turns out, this was not a wise move. We pay attention to our leaders and the NASDAQ, the Russell 2000 is not too far behind. Stick with the leaders and the laggards should be left behind.

Always cut your losses short.

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