“A breakout here could boost gold to prices we haven’t seen in more than four years…”
by Greg Guenthner via Daily Reckoning
That was quick!
Late last week, I said most investors were too scared to buy the dip. Boy, was I wrong…
Traders are gobbling up stocks, pushing the major averages higher for five days in a row. Eager buyers have all but erased the market’s double-digit pullback. As of this morning, the Dow, S&P 500, and Nasdaq Composite are all back above their respective 50-day moving averages.
Futures are up once again this morning. If the gains hold to the closing bell, MarketWatch reminds us that we’ll clock the best weekly performance stocks have seen in more than a year.
Here’s what’s happening under the surface of the major averages as we wrap us this exciting trading week:
1. Is this bitcoin comeback the real deal?
Thanks to the return of volatility in the stock market, bitcoin and other cryptocurrencies have completely fallen off the financial media’s radar.
After getting chopped in half, bitcoin quietly bottomed out in early February and began its comeback journey. It briefly topped $10,000 last night for the first time since late January. It’s now up more than 60% off its recent lows and consolidating near $9,900.
The parabolic rise we witnessed in bitcoin during the fourth quarter was unsustainable. But the crypto faithful are quick to remind us that bitcoin has endured more than a handful of crashes during its short existence. Each time, bitcoin has recovered and pushed to new highs.
Is this time different?
2. A beautiful biotech bounce
Before this month’s market meltdown, we noted that the biotech sector was outperforming the averages to kick of 2018 trading. Merger madness had taken hold, pushing shares of many promising companies in the sector to new highs.
More importantly, the SPDR S&P Biotech ETF (NYSE:XBI) has proven resilient during the volatility spike and selloff.
In fact, XBI never closed significantly below its 50-day moving average as investors dumped stocks last week.
XBI is now up more than 9% this year, compared to a year-to-date gain of 5% in the Nasdaq Composite. I suspect we’ll see more than a few profitable trade ideas come out of this sector as earnings season wraps up…
3. Gold pushes higher
Stocks aren’t the only asset class pushing higher this week. Precious metals are also perking up. Gold exploded higher on Wednesday and made a run at its January highs near $1,360 as the dollar retreated toward 3-year lows…
We don’t have to search far to find a catalyst for gold’s sharp bounce. Remember, the U.S. dollar is now off to its worst start of the year since 1987. And it doesn’t look like it’s going to recover anytime soon.
A breakout here could boost gold to prices we haven’t seen in more than four years. With the threat of inflation growing and the dollar tumbling, conditions are ripe for an extended rally in precious metals.