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Fed Comments Spark Stock Market Rally


Plus, the much-maligned gold miners appear to be setting up for a nice bounce.

Market Check

Markets were weak at the open, as it appeared that the streak of 18 consecutive higher Tuesday closes by the Dow (INDEXDJX:.DJI) looked to be in jeopardy. However, as stocks were selling off this morning, there were comments made by Fed officials about Europe and how they could potentially handle the precarious situation they're currently faced with. The proposed solution entailed a type of bond buying program similar to Operation Twist here domestically, and as you might expect, markets reacted favorably to these comments.

Currently, stocks are trading near their highs of the day, with the Dow (+0.4%) leading markets higher. The Russell 2000 (INDEXRUSSELL:RUT), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) are about 0.3% higher on the session, while bonds are catching a bid with equities, up by about 0.6%. Metals are weak today after yesterday's massive rally, but they've shaken off some of the premarket weakness that they saw. Currently, gold is about 1.4% lower while silver is off 2.4%.

Chart of the Day: Market Vectors Gold Miners ETF (NYSEARCA:GDX)

The much-maligned gold miners appear to be setting up for a nice bounce here. This is a countertrend trade, but yesterday's price action in gold and silver must be respected. As sentiment toward the miners continues to sour, they are setting up for an overshoot to the upside on a bounce. The 27 level is key, as it is the home of huge put open interest in the options markets. After probing this area last week, the ETF bounced sharply and is currently perched above it. This sets up for a low-risk long entry.

I like a bullish position here with a stop on a close below 26.80. I would initially target a move back to 30, with 32 as a stretch target.

What I'm Expecting

More upside. This morning's sell-off likely lured in some new bears, and they're likely currently feeling some pain after the sharp bounce off the morning's lows. Until we can get some sort of shock, this environment should persist. Ben Bernanke is set to speak tomorrow, so any comments he makes could have a big impact on markets.

This article by Bryan Sapp was originally published on Schaeffer's Investment Research.

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