Mining And Basic Materials ETFs Rise On QE Hopes

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Copper, metals miners and basic materials ETFs outshined the market Monday on expectations the Federal Reserve will unleash more economic stimulus when it meets on Thursday and Friday.

"This is what we would describe as an 'anticipated conviction,' as was the anticipation of the Jackson Hole speech a few weeks ago," said Ronald Lang, principal at Atlas Wealth Management outside of Philadelphia. "Investors and traders are waiting with full barrels loaded to trade in either direction, based upon Bernanke's announcement. We expect significant volatility."

The poor August jobs report released Friday and labor force participation rate hovering at 30-year lows calls for more Fed intervention, says Randy Frederick, managing director of active trading and derivatives at Charles Schwab.

"Get ready for QE3 (quantitative easing)," he wrote.

More QE, which is considered printing money, increases the U.S. money supply, thereby devaluing the dollar, making goods more expensive. A weaker dollar also makes U.S. exports more competitive overseas.

IPath DJ-UBS Copper ETN ( JJC ) gapped up 1.28% Monday to 46.82, a new four-month high. It followed through on Friday's high-volume rally when it broke above its 200-day moving average to confirm a new uptrend, after China announced a $157 billion infrastructure plan to spur economic growth. Known as Dr. Copper, the red metal signals whether the global economy is growing or shrinking as it's used to make everything from consumer electronics to industrial buildings.

SPDR S&P Metals & Mining ( XME ) climbed 1.32% to a four-month high of 44.29. It's rallied off bottoming action and past resistance points, but it's still trading below its 200-day line, which is bearish.

Materials Select Sector SPDR ( XLB ) rose 0.51% to a five-month peak, 37.14. It broke out of a bullish, classic cup-with-handle pattern Friday. XLB is just above a 36.73 buy point.

After booking their third-largest one-week rally of the year last week, the major indexes treaded water in quiet trade while holding near multiyear highs.

SPDR S&P 500 ( SPY ) ticked up 0.16%.

SPDR Dow Jones Industrial Average ( DIA ) shed 0.05%.

PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial stocks on the Nasdaq, fell 0.72%.

An analysis of the chart patterns and other technical indicators leads Mark Arbeter, chief technical strategist at S&P Capital IQ, to believe that the SPY will regain its 2007 high of 157.52, up 9% from current levels.

"Another arrow in the bull's quiver is the breakdown in the U.S. Dollar Index," Arbeter wrote in his weekly technical report. "In recent years, some of the best gains in stocks, as well as commodities, have come during periods when the dollar was falling, and we aren't going to argue with prior intermarket price relationships."

PowerShares DB U.S. Dollar Index Bullish (UUP) added 0.18% Monday after tumbling 1.3% the week before.

Overseas Markets

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, fell 0.46%. It's trading near a four-month high and a 53.02 buy point in a bullish, cup-with-handle pattern.

IShares MSCI Emerging Markets Index (EEM) dropped 0.76%. It's struggling to hold above its 200-day line.

Guild Investment Management sent out a notice to clients Sunday recommending they buy EEM, which it sees benefiting from coordinated economic stimulus from Europe, China and the U.S.

"The announcement of $157 billion of infrastructure spending in China (which is the first of several major infrastructure and monetary stimulus announcements that we expect from China) provides a strong buy signal for China and a buy signal for some countries that supply China," Monty Guild, chief investment officer at Guild, wrote. "We are not raging bulls on Chinese commodity demand, but it will be positive and should grow at about 5% a year in the next five years."

"The very strong prospects for a QE from the U.S. give a continuing buy signal for U.S. stocks," he added. "Continued QE from Japan and other countries reinforces the buy signal for much of the globe."

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
Referenced Symbols: DIA , JJC , SPY , XLB , XME

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