FED "QE" STARTS TOMORROW: Imminent Capital Rotation and Gunpowder Barrel Called $GDXJ

[Igor Pereira]

Tomorrow, December 12, marks the official start of the Treasury securities purchase program by the Federal Reserve. No matter what technical name they use ("book management"; the market knows that the printer will be turned on.

By Igor Pereira, Financial Market Analyst, Junior Member WallStreet NYSE

While the large stock market (S&P 500) faces a slow grind down due to stretched valuations and weak real economic data, Smart Money is already moving. We're seeing the classic beginning of a Capital Rotation: money comes out of overvalued paper assets and flows into undervalued real assets.

Today's tactical focus is the VanEck Junior Gold Miners ETF ($GDXJ) . If gold is protection, junior mining companies are leverage. The GDXJ chart looks like a gunpowder barrel about to explode.

• Logic: The juniors were crushed during the tightening cycle. Now, with gold at maximums and capital cost falling (via Fed), its profit margins will expand exponentially.

• The Trigger: Tomorrow's liquidity injection is the spark. Historically, when the "QE" begins, high beta assets such as GDXJ surpass physical metal itself in 2x or 3x.

The general market may bleed slowly ("grind down") as it digests stagflation, but the mining sector is positioned for a breakout violent. The risk-return asymmetry in GDXJ has never been more favorable. If you were expecting the signal to increase the exposure in mining companies, the start of Fed shopping tomorrow is the clarim ringtone.

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