With the recent news that the Fed will indeed buy $600 billion in government bonds over the coming eight months, we see significant price actions in many markets. We have the USD Index testing its recent lows, general stock market that appears to be poised for a 1-1.5% increase at the beginning of today's session, and we have rising values of precious metals. All in all, the stimulus seems to be taking markets in the predictable way.

But is this really the case? We will know much more only after today's session. There were simply too many cases when investors bought the rumor only to sell the fact soon after that. This essay explains the phenomenon quite well: http://www.fool.com/foolu/askfoolu/1999/askfoolu990901.htm. In short - today's price and volume action will most likely be the key to understanding the next market move - an intra-day high and a big decline in the final part of the session will be a bearish signal, while a decisive move up on high volume will signal another big upleg. In the previous update we mentioned that it is not the fact alone that moves the market, but the way this particular fact relates to investors' expectations - today we will see how does the $600 billion stimulus relate to investors' expectations.

The USD Index is only slightly below its long-term support level (and before its October low), and at the same time gold is still not at its October high. Silver is definitely outperforming gold, which happens in the final stage of a rally, and we have yet to see mining stocks' response to today's action. Still, with metals and stocks rising, mining stocks will be poised to rise as well. The implications for you depend on what instruments you used to bet on lower metals' and mining stocks' prices (if any). With options - no action is required as the value of these options has decreased along with higher prices, which means that the size of the "bet" on lower prices is automatically smaller.

We believe it's OK to keep these options, since if the markets decline (thus "selling the fact"), the drop will be a major one. If you are using instruments that will need you to increase your deposit or so in order to keep the whole position open - we suggest closing half of it. We can always re-open it and/or purchase other options once we have more information about the market - and - as mentioned above - we expect to have more information after today's session.

Again, the above comments regard the speculative part of your portfolio. At this point we don't think you need to consider selling your long-term holdings in the precious metals sector.

We will keep you updated and let you know if anything changes and we believe that additional action is required on your part.

Thank you.

Sincerely, Przemyslaw Radomski