How low can an exchange traded fund go? Here's a look at the
with the biggest declines in January and whether they're bound to
Gold Miners Go Dull
Gold miners have been losing luster for the past year and a
half and keep getting duller and duller.Market Vectors Gold
Miners ETF (
) melted 10% in January andMarket Vectors Junior Gold Miners ETF
) 5%. They severely undercut
SPDR S&P 500
Index ETF's (
) 5% return.
GDXJ tumbled a whopping 38% from its 52-week peak while the
market chugged to fresh five-year highs.
GDX and GDXJ trade deep below their 50- and 200-day moving
averages, showing a strong downtrend. Their single-digit
IBD Relative Strength Ratings
show they've lagged the price action of more than 90% of the
market in the past 12 months.
David Morgan of the Morgan Report, which specializes in
precious metals, believes gold miners will stage a turnaround
this year as gold prices top $2,000 an ounce and silver $55 an
Morgan projects the Federal Reserve's third economic stimulus
program will pump $1.14 trillion into the economy by January
2014. That's nearly double the second round of quantitative
easing (QE2) of $600 billion.
"QE2 ignited a precipitous rally in the precious metals,
pushing silver toward $50 an ounce and gold toward $2,000 an
ounce," Morgan wrote in his most recent newsletter. "So an
additional $1.14 trillion of stimulus is sure to ignite another
rally in precious metals."
In addition, the European Central Bank will likely print more
money to bail out Spain and depress lending rates to boost
The Bank of England and Bank of Japan are also engaging in
aggressive economic stimulus programs. On top of that, gold and
silver will likely experience a short squeeze, in which traders
who sold borrowed shares to profit from falling prices rush to
close their positions by buying the shares back, thereby lifting
Many gold companies are trading at historically low
valuations, says Tom Winmill, portfolio manager of natural
resources fund Midas. For example,AngloGold (
) currently trades eight times earnings, but with 20% estimated
production growth between 2011 and 2014 and annualized production
of 5.4 million ounces.
Traders Sour On Sugar
IPath DJ-UBS Sugar ETN (
), tracking sugar futures, burned off 4% in January.
Morgan Stanley forecasts a global surplus of sugar in the
first quarter, noting that larger-than-expected output from
Brazil could lift supplies even higher.
"Absent broad cane renewal efforts, and increased Brazilian
production still critical for the long-term global sugar balance,
we see longer-term sugar prices needing to remain at a level that
incentivizes farmers to replant current sugar cane stands and
expand acreage," Morgan Stanley wrote in a commodities report.
"However, that incentive price still sits well below current
Chinese import demand will likely be low because of ample
stockpiles and a bumper domestic crop. Higher gasoline prices in
the first quarter and increased use of ethanol (produced from
sugar) to blend with gasoline should boost demand in Brazil in
the coming season, Morgan Stanley added.
SGG trades below both its 50- and 200-day moving averages,
indicating a strong downtrend. Its D
IBD Accumulation-Distribution Rating
on an A-to-E scale shows institutional selling far outweighs
Coffee Drips Ever Lower
IPath DJ-UBS Coffee ETN (JO) and
Pure Beta Coffee ETN (CAFE), which track coffee futures, gained
2%-3% in January after bouncing off 52-week lows. Commodities on
average rose 4%, according to Morningstar. JO and CAFE plunged
37% in the past year while agricultural commodities lost 3%.
Coffee prices have dripped down to long-term price support
levels that historically have attracted buyers, according to
Shawn Hackett, president of Boynton Beach, Fla.-based Hackett
Financial Advisors, which specializes in commodities trading. He
projects there will be a shortage of about 2 million bags in the
2013-14 growing season.
Prices aren't high enough to motivate farmers to increase
planting acreage to meet growing Asian demand. And the next crop
cycle is vulnerable to poor weather and disease. With coffee
trading at historically cheap levels, there's more upside
potential than downside.
In an investor presentation, Hackett cited key reasons the
world's three major growing regions face a production
Brazil: The majority of the rapid growth in production in
recent years in Brazil has come from the off-season crop catching
up to the on-season crop. With this process near completion, the
future two-year production growth will slow markedly.
The low-lying fruit of increasing tree populations per acre
to grow yields is winding down.
Future growth in production will need to come more from
acreage expansion. Prices will need to rise high enough to
Vietnam: Vietnam has entered a multiyear period of
With 25% of the current tree population beyond peak
production output, a painful rejuvenation program will have to
Most of Vietnam's recent production growth has come from
acreage expansion. That process is transitioning as the
government promotes sustainable farming with limiting future
Mexico/Central America: Roya (a coffee leaf rust fungal
disease) has infiltrated a majority of the key growing
JO and CAFE currently both trade below their
50- and 200-day moving averages
, indicating a strong downtrend. They need to break above both
moving averages in order to confirm a new uptrend.
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