Tuesday, December 27, 2005

Post Christmas Reversal

Since the market decided to have an interesting day, we decided we should put up a post tonight.  Tuesday’s market was an outside down day in all three indexes we follow except that the volume was not very heavy.  Since Friday was such a flat uneventful day, we decided to take a look at the trading for the last two days and all three indexes traded higher today than any of the trading of the last two days and closed below the lows of those two days as well.

The market popped hard at the beginning of trading such that the Dow was up 50 points in the first half hour only to lose 150 points from there into the close.  The price movement indicates a powerful reversal action while the volume was less than inspiring due to the holiday trading.  

The main news for the day was the inverted yield curve in the Treasury bond market, where the yield on the 10 year dipped below that of the 2 year.  This seems to be the definition of an inversion as it was presented in the media today.  The point is that the yield curve is at least flat and bound to invert.  The reason this is important is that investors don’t need to get paid for inflation for anything past 2 years.  An inverted yield curve has forecast a recession every time since WW II.  

At the close the yield on the two bonds were the same at 4.34% while the five year was 5 basis points less at 4.29% and the 30 year was 16 bps more at 4.50%--pretty flat by any standards, really.  When you consider that the Fed Funds are at 4.25% for overnight funds, this is really flat.

Another reason for the post is that the “True Contrarian” published his thoughts on several of the markets we follow.  We thought maybe you’d like to take a look at his forecast for 2006.  You’ll find the link on the left.

Hope you had a nice Christmas.

Dow Industrials:  10,777.77  -105.50
RYVNX:  18.85TLT:  92.55
BEGBX:  13.24

Thursday, December 22, 2005

Merry Christmas

The stock market basically chugged higher Thursday on fairly low volume.  With the Christmas holiday over the coming weekend (in case you might have forgotten), trading should be subdued on Friday, too.  The big beneficiaries of trading were Caterpillar and AIG, both of which are in the Dow Industrials.  They were both identified by separate firms as being among the top picks for the coming year.  Credit Suisse First Boston picked CAT and Merrill Lynch named AIG, both being up substantially on that news.  On the other hand, GM retreated again on Thursday and dropped over 2%.

In other markets, natural gas futures dropped almost 10%.  Gold was up almost $8 with the HUI trading up over 11, looking to make a new annual high in that index.  The news in the gold complex was Barrick Gold’s (ABX) hostile takeover bid for Placer Dome Inc.  This kind of merger news can have some speculators lathered up for other takeover targets and push possibles up accordingly.  

With all of the bullishness in the marketplace, it’s difficult to believe that the Dow hit a high for the move almost a month ago on November 25th at 10,931.  The Nasdaq Comp hit its high of 2273 on December 2nd.  The SP 500 is a bit more recent, December 14th.  You would think from all of the Santa Claus rally talk that we were well above all of these numbers.  But, You should understand that the three numbers just mentioned are our protection points.  As long as we are under those numbers, we are confident the next big move is down.  If all three of the indexes go above their respective highs from the last month, then we will reassess.  Until then, we remain bearish.

Tomorrow’s items are durable goods orders, expected to be up 0.8% and new home sales.  We don’t really expect market moving numbers, but only because most all the traders will not be present on Friday.

Next week is going to be a light week and our post schedule will not be definite.  If something happens in the prices that we need to report, we will post.  Otherwise, don’t expect an updated post until the New Year.

With that in mind, please have a Merry Christmas and a Happy New Year.  The Wednesday Update wishes you and your family the very best.

Dow Industrials:  10,889.44  +55.71
RYVNX:   18.85
TLT:  91.24
BEGBX:  13.27

Wednesday, December 21, 2005

Winter Begins

Now, wasn’t that interesting.  The market was perfectly set up today to show us an outside down day but managed to recover in the last hour to prevent that very bearish event.  I don’t think today could really be considered a bullish day anyway.  The Dow was up nearly 100 points this morning and bumped into 10,900 and that was the end of the up move.  Late in the day, the Dow was sporting about a 10 point gain and as mentioned was able to hold positive ground, ending up about 28 points.

Here the market is again, trying to get something going only to be pushed back.  This is happening in the face of all this bullishness about the year end rally.  One of the guys in my office came to me yesterday and asked if I’d take a bet on the Dow breaking through 11,000 by the end of the year.  I replied that I already had a big bet on that event, as short as I am.  So, of course, today when the Dow was up near that 10,900 area, he was back.  I almost took him up on the bet just to see what would happen.  But, the market made short order of that high and then proceeded back south most of the rest of the day.  

Our position is that the market has told us that the high is now just below that 11,000 mark.  The broader market is also in that same position—top is in for this move.  If that wasn’t the case, do you think the market would be having any trouble getting back to those levels over the past two days?  I will admit that the market is still well above the 10,500 range it was in for so many months but it also could go through that level in a heartbeat.  If this market is going to go down right here, the path might be fairly greased and ready to go.  

On Thursday we get the Leading Economic Indicators expected to come in around +0.5%.  Friday we get the Durable Goods Orders and November New Home Sales.  It doesn’t seem that the market is paying much attention to news these days but we wanted to let you know what was coming.  Sometimes it’s just better to know than not especially if the market decides to trade on the numbers and you don’t know what is going on.

That reminds me, we mentioned GM in last night’s post and thought we’d give you and update on it.  GM opened down Wednesday morning in a follow through from Tuesday’s after hours hit.  It immediately rebounded to a positive but spent the rest of the day leaking from the high around 20.30 to close at 19.05, another multi-decade low.  I think the last time it traded this low was back in 1983—again, so much for that theory of buying big name stocks and holding on to them forever.  And, don’t forget that as GM goes so goes the market, an old market adage.  

Dow Industrials:  10,833.73  +28.18
RYVNX:  19.14
TLT:  90.52
BEGBX:  13.23

Tuesday, December 20, 2005

GM Falls

The biggest story I could find on the market today was GM. A report suggested that Toyota may surpass GM as the No. 1 auto maker and the stock took a 5.7% drop during the trading day and dropped another 2.5% after hours. Connected to this story was the big investor that “saved” GM back in May with his announcement that he was taking a large stake in the company. Kirk Kerkorian indicated (actually his company, Tracinda) that they had sold part of their share in GM for about $20 a share after purchasing it in May for around $30, not a bad trade for six months. How would you feel if you lost a third of your portfolio in half a year? Not a good situation for anyone involved.

There was another item that we noticed only because we tend to watch it and wait for another opportunity and that was the price of gold. After trading near $540 last week, it closed under $500 today on a steep drop of about $10 and continues dropping in after hours markets around the world tonight to the tune of about $4 more. Silver followed suit by dropping 25 cents. The HUI did not move down nearly as much as gold but it has not followed gold on this run so it didn't have as far to fall. We are expecting another 15%-20% drop in the HUI as we wait for an opportunity. We are glad not to be on the wrong side of this move.

The other two news items we mentioned, housing starts and the PPI, were pretty much dismissed by the market. The bond market did drop initially on the news but managed to contain its losses over the course of the day. But, for the most part these items were not considered in trading today. No surprise there.

There was a bit of a surprise in that the market didn’t manage to make a good rebound from the losses it sustained yesterday. There’s a lot of week left but the reaction today was less then bullish from our perspective. We mentioned that the market would probably try to retrace some of its losses from yesterday and it still may but there is less strength in the market than most think.

As we approach the end of the year and this rally has run out of power, there is going to be a remarkable vacuum of buyers going into 2006. The market is Very dangerous right here and you should guard your principal. As bears, we look at a day like today and say that maybe tomorrow there will be a rally. Think of what the bulls must say after today. If they also say maybe tomorrow there will be a rally, and it doesn’t come what do they say tomorrow?

Be careful and BE SELLING any rallies.

Dow Industrials: 10,805.55 -30.98
RYVNX: 19.26
TLT: 90.68
BEGBX: 13.29

Monday, December 19, 2005

NASDAQ Takes a Hit

We have suggested that you sell into strength for the last couple of weeks but you didn’t get much chance to do that today as the stock market started off with a little gain but basically leaked all day and went out on the lows.  This is a Monday in front of a two week holiday period which many have thought would produce a nice rally going into year end.  Today’s action doesn’t help that argument at all.

Don’t be deceived by the 39 point loss in the Dow.  That was mitigated by the outsized gains of the two drug stocks in the Dow, Pfizer (PFE) and Merck (MRK), based on a patent victory (Lipitor) by Pfizer.  I guess Barron’s ran a story over the weekend about AIG saying the worst of the scandals and executive reshuffling are behind them and the price may come back and it did today to the tune of about one percent.  (Our position is that AIG has seen its highs for a while.)  Without those gains the Dow would have been down about 40 more points.  The losses today came even though oil dropped into the $57’s.

The big move was on the NASDAQ as that index fell almost 1.5%, showing surprising weakness for a Monday.  We are not unhappy about this move but we weren’t expecting such a big drop on a Monday.  The move was significant because it pulled the average down below lows set a week and a half ago and the lows set at the end of last month.  

What is more ominous is the drop in prices without any real news to cause it.  We would not be surprised to see the market continue to drop from here.  All it has needed in the last two weeks is a start to the downside and it will go down.  The participants are So bullish and are not prepared for a large drop, a pull back maybe but not a large drop.    

Tuesday we get to see the PPI and housing starts before the market opens.  We’ll see how those pieces of news affect the market.  We don’t think they will have much effect but there is always a chance the market will try to pay attention to them.  

Markets don’t tend to fall right out of bed and we understand that the market has every right to retrace some of Monday’s fall but we think that the market has now tipped its hand for the next move—down.  Be careful and be selling rallies.

Dow Industrials:  10,836.53  -39.06
RYVNX:  19.27
TLT:  90.79
BEGBX:  13.42

Sunday, December 18, 2005

Slow Weeks Ahead

For the week last week, the Dow Industrials managed to gain about 100 points or 1%.  The Dow was the best performer of the indexes we follow, with the SP500 up about a half of one percent and the NASDAQ Comp actually Down a little.  

Gold, from its highs on Monday morning near $540 a ounce, closed down nearly $40.  We are fairly confident that the recent price highs in HUI and Gold are solid tops with buying limited to retracing some of the losses since then.  

Meanwhile, the bond market keeps moving up in spite of the Fed’s recent interest rate move.  The ten year Treasury is at 4.44% while the overnight Fed funds rate has moved up to 4.25% as of last week’s Fed meeting.  That’s 19 bps of spread for ten years of inflation.  

The stock market has signaled a high for us to pay strict attention to, that being the highs set over the past two weeks in all indexes.  The main one the world watches is the Dow Industrials and its high for the last few weeks has been the 10,950 level, maybe more like the 11,000 for most observers.  We are extremely bearish against this high.  If the highs of the last few weeks get penetrated to the upside, we will need to reassess but for now, it looks like those will be tough ceilings.

There were two people in the news this weekend, one a bull, Tobias Levkovich, and the other a bear, Robert Shiller.  They both are looking at the same market and coming to very opposite conclusions.  We would, of course, have to side with Mr. Shiller and say that the market is still too exuberant.  He reminds us of the Dow 36,000 forecasts that were written in a book by that title in 1999: “…a sensible target date for Dow 36,000 is early 2005, but it could be reached much earlier.”  As the CNN article says, “Or not.”  Maybe we should take a poll and ask when you think the Dow will hit 36,000…or not.

There are several noteworthy items coming out this week such as the ICSC Store Sales Index, the PPI, and November housing starts on Tuesday with durable goods orders and November new home sales on Friday.  Until tomorrow, we remind you to Be careful and Be selling into good rallies.

Dow Industrials:  10,875.59   -6.08
RYVNX:  18.72
TLT:  90.70
BGEIX:  14.49  (we are dropping this from our watch list)
BEGBX:  13.43

Thursday, December 15, 2005

CPI Falls?

Thursday morning we heard that the CPI was Down 0.6% in November.  That’s just the way the headline read.  We normally hear how the Core CPI moved and we did today but it was not the headliner.  These numbers are so silly anyway.  I don’t know how anyone can believe them.

An Illinois court overturned a $10 billion class action suit aimed at Philip Morris.  As you might imagine, MO was up about 4% on the news.  This stock closed today over 76 to an all time high.  Back in 2000 it had just gotten hammered by the tobacco decision and traded down under 20, a quadruple to today in about five years.  If it’s any interest to you, I was recommending MO at the time.  Of course, it wasn’t a popular choice when it was under 20, but today it is popular.  So, what do you think this contrarian thinks?  

Tonight, ORCL (Oracle) announced earnings and they disappointed.  Their net earnings dropped 2.1% on a revenue rise of 19%.  The stock dropped nearly 3% after the news.  The rest of the market seemed uninterested as the futures are up in overnight trading.    

Friday is what they call Quadruple Witching as four types of derivative in the stock market expire, stock options, index options, futures, and options on futures.  At any rate, this happens once a quarter as that is how the futures trade, March, June, September, and December.  Options on stocks and indexes expire once a month and those days tend to be a little volatile too but not quite like the Quadruple Witching.  Normally there is heavy volume traded as positions are unwound forced by the expirations.  Mostly, these contracts are not executed, just unwound so there can be a lot of volume.

Based on the Quad Witch, we don’t see much of anything real happening on Friday.  We will be back again on Sunday evening for another post.  See you then.

Dow Industrials: 10,881.67  -1.84  wow
RYVNX:  18.43
TLT:  90.40
BGEIX:  14.31
BEGBX:  13.36

Wednesday, December 14, 2005

What Happened to the NASDAQ Today?

The stock market seemed undecided today with the Dow up and the NASDAQ down.  The SP 500 managed a new high for the move which means the SP 500 is to another 4 year high.  We only bring this up because of Where the market Has been, not to provide insight into where it is going.  So many people think that the market Is going up when really it Has already gone up.  Now, it’s just a matter of picking an exit point.

Today’s trading leaves a question in our mind:  What happened an hour and a half into the session that caused the NASDAQ to drop so fast? Looking at some of the big names doesn’t reveal any big drops for them but still the index shows a rather large drop for about ten minutes before recovering nicely during the day only to fall into the close.  The Dow and the SP500 both dropped at the same time but didn’t fall nearly as hard and both were positive on the close.  There were a couple of downgrades on Apple Computer (AAPL) but that happened before the market opened.  Oh well.

I guess the big news for the past couple of days is in the currencies and the precious metals.  On Monday evening we mentioned that the dollar had dropped out of a trading range that it had been in for about a month.  The Fed raised short term rates on Tuesday partly to prop up the dollar and the dollar has now fallen a bit more, not really a lot but it dropped below 90.  (With this noticeable trend change in the dollar we have added to our watch list below the mutual fund BEGBX, a fund that hedges against the dollar.  It is at a nice price here after rising a bit from the lows set when the dollar was trading in its trading range.)

The Japanese yen on the other hand exploded yesterday.  The yen has been in a decline for a year starting back in December of last year when it traded near 101, closing this week under 83.  On Wednesday the yen closed about 85.25 for a significant jump of nearly 3% in one trading session.  

As for gold, it took another beating today dropping about $15 to close around $505, this after trading at $540 just a couple of days ago.  Silver has followed suit by trading down from 9.20 a couple of days ago to 8.35 today.  These are large moves for both metals and indicate that more is probably coming.  We will continue to stand aside waiting for a good opportunity.  

Important notes about today’s rally in the Dow:  The Dow was up with the NASDAQ down and the Dow stayed below its suggested ceiling of 10,950.  We continue to watch that level to balance our bearish stance.  Yes, the SP 500 made a new high but that doesn’t mean it’s a buy.  We still think that the market is desperately trying to hold on to its recent gains but it will Fail.

Probably the most interesting of all markets on Wednesday was the bond market which jumped a day after the Fed’s rate increase announcement.  I’m sure the Fed was hoping the bond market would follow along and push longer term rates up but that wasn’t the case today.  The bond market pushed rates down today trying to get the yield curve as flat as possible.  Right now, the fed funds rate is at 4.25% and the ten year bond is at 4.45%, meaning that ten year money is only worth 20bps more than overnight funds, amazing.  For comparison purposes the 30 year T-bond is yielding 4.66% for another 20bps for 20 years.  

Dow Industrials:  10,883.51  +59.79
RYVNX:  18.49
TLT:   90.62  (nice move up in bonds today)
BGEIX:  14.20  (going down)
BEGBX:  13.39  (New to our watch list tonight--dollar hedge mutual fund)

Tuesday, December 13, 2005

Say Goodbye to "Accommodative"

Today the Fed surprised the market with a…no, no, no, there was no surprise.  The Fed raised rates 25 bps to 4.25% bringing the number of increases to 13, a very long baseball game indeed.  The Fed’s announcement was greeted with the predictable buying frenzy for a few minutes that took the Dow up about 100 points.  Most of the rest of the day was spent trading in a fairly narrow range but drifting a little lower in the final hour to only close up about 55 points.

Bonds were modestly up at the opening but faded into the announcement but generally recovered to close on the highs of the day.  This is not what the Fed has been hoping for.  They want the long Rates to go up but instead the Prices are going up and rates are going down or nowhere, you remember the conundrum.  

But, wait, the Fed not only is managing the short end of the interest curve, they are managing Adjectives too.  They removed the word “accommodative” from the monetary policy statement.  Maybe next time they can remove the adjective “measured”, then we can really have a good rally.  (yes, sarcasm)  I am truly amazed that the Fed has the market mesmerized into thinking that if only they change one word in the policy statement, that is bullish for stocks.  Aren’t there other things the market should be paying attention to?

Well, we think so and here are some of them.  Today:  1.) natural gas closed at a new high near 15.50 about double where prices were a year ago (about 7 to 7.50); 2.) retail sales, without autos, were down for the month of November.  Didn’t we hear that Thanksgiving sales were 20% higher than a year ago???; 3.)  Best Buy (BBY) announced it was lowering guidance for the quarter and the year and said desktop computer sales were a bit of a problem.  BBY lost 12% today;  4.)  Don’t forget that the Fed actually Did raise interest rates, they didn’t just lower the number of adjectives.

We continue our bearish stance.  There is very little reason to be long this market in any way shape or form.  BE CAREFUL and be selling.

Dow Industrials:  10,823.72   +55.95  (well below 10,950)
RYVNX:  18.34  (if you want to buy something, buy this)
TLT:  89.70
BGEIX:  14.50    

Monday, December 12, 2005

Slow Trading Ahead of Fed

The stock market seemed to be treading water on Monday and rightly so as the Fed is set to meet on Tuesday and decide on the important course of short term interest rates.  Actually, the stock market is hoping that the Fed removes the measured language it has used for the last year or so.  That way, the stock market figures the Fed is done raising rates and they can party on and get this market moving up again.

We are of the opinion that any change in the Fed policy statement will be viewed as positive by the market even though that enthusiasm will probably wane quickly.  The way the market reacts on Tuesday will only be another clue in how the market will trade in the next year.  Bullish sentiment persists even as the market has shown a fairly strong ceiling near Dow 10,950.  Volume continues at a “measured” pace since Thanksgiving and there are many reasons that this rally is on its last legs.  

We are in a waiting pattern until the Fed announces but we are firmly bearish this market at these levels.  Even gold looks like it hit a top today falling sharply in the afternoon trading.  The dollar seems to have fallen out of bed today too after trading in a nice 91 to 92.5 range for about a month, it fell to just over 90 today.  The two markets should be trading opposite each other but both look like they want to go down right now, and go down together.  We will see.

We’ll have more to say tomorrow evening after the news.  Until then be careful and be selling any strength after the Fed’s announcement.

Dow Industrials:  10,767.77  -10.81
RYVNX:  18.50
TLT:  89.37
BGEIX:  14.66

Sunday, December 11, 2005

Fed Decision Due on Tuesday

The market has another Monday to trade and as I write this (Sunday evening), the overnight futures are fairly strong trying to make a good start in the morning.  We tend to see strong Monday’s and this one looks like it wants to at least start the day on the up side.  

We think the news from the Fed will be another quarter point hike on Tuesday so why’s the market so firm tonight?  The traders think the Fed might just eliminate the measured language it has used in its policy statements over the past many meetings.  That news would signal to the market that the rate increases might be over.  We don’t necessarily agree with the logic even though we might actually agree with the outcome.  With a yield curve that is virtually flat, a higher short rate would cause them to be higher than the longer dated securities causing what is called an inverted yield curve.  

A “normal” yield curve is people charging more to borrow money for a longer period of time.  An inverted curve means the short end is higher than the long end, which is not normal, why would You be willing to long money for twenty years at a rate that is less than a one year loan?  It just doesn’t make sense to the normal person.

Inverted curves have been associated with an economy leading to a recession which is another reason the Fed doesn’t want to see it happen and may stop raising the short end just because of that.  You may have heard about the “conundrum” that Greenspan talked about recently.  The Fed has pushed up the short end of the curve and has tried to force the longer end of the curve up by doing that.  Well, since it hasn’t really worked, Greenspan calls it a conundrum.  Maybe the market knows something the Fed doesn’t.

We are looking forward to the Fed’s announcement on Tuesday afternoon and are anxious to see that way the market trades into and out of their decision and statement.  

Dow Industrials:  10,778.58   +23.46
RYVNX:  18.62
TLT:  89.54
BGEIX:  14.62

Thursday, December 08, 2005

INTC Disappoints Market

Here we are after four days of trading this week and we see the Dow Industrials dropping to the 10,755 level, remembering that the Dow closed 2004 at 10,783.  The Dow has been exhibiting signs of a top after trying several times in the last two weeks to overcome the 10,950 level but failing.  Yes, we know that the 200 points separating tonight’s close and 10,950 is a very small number.  The strength in the market place seems to have been used up on this very strong 2005 rally that has taken the Dow to 30 points less than last year’s closing price.  (yes, sarcasm rules)

The market had no idea what direction it wanted to go today starting modestly higher, and then dropping to the morning lows and then spurting up almost a percent about an hour into the session.  The market traded at that level for about another hour and then dropped back to the morning lows for another hour before trading up into the close.  This makes for a truly unpredictable trading situation, especially have the various sectors traded today.

After the close, INTC graced the scene with its mid-quarter update and tightened up its revenue guidance for the fourth quarter.  The market didn’t really think the news was too impressive and hit the stock for about 3%.  I don’t really know how it will trade in the morning due to the overnight futures having recovered a bit from the INTC news.  INTC has had quite a round trip these last few weeks having been right at 24.5 and moving up to 27.5 and tonight trading down to just under 25, the close I saw in two different places was 24.93 and 24.90.  

Next week we have much news for the market to trade on and there could be some volatile trading.  At the end of next week is the options expiration which can cause some extra volume with the volatility.  During the week we get to here from the Fed on their next interest rate hike, which would be on Tuesday December 13th.  Other news next week includes the CPI and reports on the twin deficits as well as several other fun and games.  We’ll be back on Sunday evening, see you then.

Dow Industrials:  10,755.12  -55.79
RYVNX:   18.75
TLT:  90.25
BGEIX:  14.72

Wednesday, December 07, 2005


The stock market seems to be set on declining all of a sudden.  When the Dow had trouble last week near that 10,950 level and then fell away, it seemed like a good opportunity to get out.  Then this week, the Dow tried to rally back to that level but didn’t quite make it.  These don’t seem like mighty signals to most but we see them as powerful.  The trading day on Wednesday was much more negative than the numbers showed at the end of the day.  There was a bit of a rally going into the close to eliminate the worst numbers of the day.  

All in all, Wednesday was not a very good day.  There was a story during the day, confirmed by the news later on in the day that someone had been shot by an air marshal, a story which most of you have probably heard by now.  We only bring this up due to the market seeming to trade down on that news a little today.  You just don’t know what news the market will trade on until it comes.  

During the day the Dow dropped into the 10,700’s but managed to rally back over 10,800.  Remember that the Dow closed 2004 at 10,783 and today traded at that level.  Pretty strong year for the Dow, it may close breakeven.  Cash would have done a little better, without the headaches.  Yes, our other two indexes are up about 3% on the year but the year isn’t over.  There is plenty of time for a drop off in those.

After the close, Texas Instruments (TXN) announced good guidance for the fourth quarter and the after hours market was happy about it and drove the price of TXN up a couple percent.  Since then, there has been some deterioration in the futures as we are now seeing negatives replacing the happiness after the close.  We report this due to the nature of the trading.  Recently, it hasn’t mattered what happened during the day, the futures seem to have been up and above fair value every night for the past month.  So, tonight’s action after the TXN news is something to report.

Gold continues to outperform and we are not too pleased by being out of the sector.  We remind ourselves that we had a nice trade this summer with BGEIX but somehow this up move has gone further than we expected.  We remind you that we still think that it is a temporary situation but the world is definitely paying attention.  We do watch it every day and look for opportunities, so far, no safe plays seem available.

One last item:  We received an email from one of our readers that contained an article from yahoo finance that made some claims about the housing sector that of course align with our thinking process.  The title of the article said that the housing slowdown may claim 800,000 jobs, 500,000 in construction and 300,000 in finance.  The article sited several reasons like new home sales have declined, applications for home mortgages have trended down since September, homes are remaining unsold longer and home construction is outstripping population growth.  They must have been reading the blog for the last six months.  Thanks for the email.  

Be careful and be selling, “Cash is King”.

Dow Industrials:  10,810.91  -45.95
RYVNX:  18.50
TLT:  89.67
BGEIX:  14.50

Tuesday, December 06, 2005

A Small Reversal in Stocks

After yesterday’s DOWner, the market decided it was time to have a rally from those severely depressed prices (yes, there it is again, sarcasm, I’ll try to do better).  Out of the chute stocks appeared to be headed for the moon, rising steadily until around noon (do you like rhyming better than sarcasm?).  The bulk of the afternoon was spent treading water around the 10,910 level in the Dow, curiously below the highs of last week around 10,950.  That level seems to be impervious so far.  

A strange thing happened on the way to the close however, the market decided to fall the last hour of the day.  The last hour saw the Dow drop from that 10,910 level to close near 10,850, a significant reversal since it opened higher than that.  On the surface, people can see that the market was up on the day.  What they don’t know is that it closed near the lows of the day and below the open.  All of the major indexes exhibited this pattern of trading.  This is Not bullish.

Reading the online WSJ this evening, there is an article of note relating to the housing market.  It should be in the Wednesday paper version so you can look at it yourself under the title “Investors Retreat From Housing Market”.  The article suggests that investors, maybe we should call them real estate speculators, have slowed their purchases of homes for investment purposes.  It says that in Phoenix, about 30% of properties for sale are owned by investors while six months ago, most investors were buying rather than selling.  The article continues by saying that in April, there were about 8,600 homes for sale in the Phoenix area and in October that number climbed to 22,340.  

You have likely heard of the practice called flipping, which means that people buy homes and immediately put them on the market for sales at higher prices.  Some of these homes are pre-construction homes and have been popular with “investors”.  The article quotes a broker who had set up a web site last year specifically for “investors” that were looking for these pre-construction properties.  With the market softening, he reports that “I haven’t sold an investor a property to flip since June.”  

One of the headlines that we failed to report yesterday tells of another key data point on the housing market, that being the National Association of Realtors’ index of pending home sales dropping 3.2% in October.  As these pending sales drop, so do actual sales and this index is a leading indicator to tell us just that.  We may be reading too much into this one piece of data but we have seen more and more evidence of a slowing in the housing market over the past six months.  

To us, the real estate articles represent critical information that the stock market is currently ignoring, as this current rally has been maintained for almost two months now.  We continue to see deterioration in the housing market from all signs and we have to say that we are keenly interested in how the stock market will cope with the likes of a housing pullback.  So far, there has been enough smoke to confuse the market, but soon enough it will figure it out.  Until then we remain short.

The gold mining stocks managed to get to a new high for the year today which seems a little delayed based on where gold has been trading recently.  We feel this is a must avoid market at this level.  We would tell you to short it but we feel the stock market in general offers as good or better shorts.  Be careful and be selling any rallies.

Dow Industrials:  10,856.86  +21.85
RYVNX:  18.40
TLT:  90.01
BGEIX:  14.22  (new high)

Monday, December 05, 2005

Monday's Market Pointed Down

Unusual trading for a Monday, with the major indexes all being down, at least a little.  Normally, we see a fairly strong start to the week but not Monday.  The NASDAQ just dropped into the first hour of trading but then stabilized the rest of the day.  The question is “Can the market start its descent now?”

The stock market has been overbought for several weeks now and is certainly due for a correction.  This correction could take a couple of different paths, one which would basically trade flat for a few weeks or two which would mean a good drop in prices.  With the Dow Industrials meeting some significant resistance in the 10,950 area and now rolling over about a hundred points, there hasn’t been much in the way of relieving the overbought condition.  I vote for a decline in prices just because Monday’s trading showed some weakness in the market without much in the way of buying to bring prices back higher.  

The stock market is currently a dangerous place to store your funds.  We continue to advise selling any strength.  The market looks tired and in need of some price declines to alleviate this unusually bullish period of time.  We remind you to take a look at your portfolio to see if it is giving you a good run along side this “rally” or is it lagging?  

Gold keeps pushing higher without much in the way of support from the mining stocks.  This should be a warning signal to most traders and is to us.  We don’t like missing out on a good run but we really haven’t been impressed by the mining stocks’ move.  The HUI was up about a buck on a five dollar move in gold, not a good ratio.

Not much else to report this evening and our posts have been fairly long the last few days so we will keep this one short.

Dow Industrials:  10,835.01  -42.50 (Time to head back to 10,500?)
RYVNX:  18.54
TLT:  89.10
BGEIX:  13.90

Sunday, December 04, 2005

Time to Evaluate Your Portfolio

The Stock market continues overbought, giving all ample opportunities to raise some cash.  The best thing to do is to consider moving out of some of your highly appreciated mutual funds and especially if you are in an aggressive growth fund in your 401(k), there you don’t even have to worry about the tax consequences.  Normally, traders talk about tax loss selling at this time of year but with the market up so much right now you should be evaluating your exit points.

The gold market has shown us a lot of strength lately but not so much in the HUI.  The gold itself is up as we write this (Sunday evening) about $3 in overnight trading.  If you take a close look at the charts of gold (use GLD as a proxy) and HUI over the past month, you will see the spike in gold itself to what are new 23 year highs. The HUI has been able to break above its late September but not by much.  This lack of resolve on the part of the HUI to break out with gold is ominous as the mining stocks generally move ahead of the metal, the other way around.  We don’t have the courage to short gold but we don’t think this is a very good opportunity to get into it.  

Our involvement in gold was for about four months from the lows of May to the highs of September.  We have recently watched the BGEIX go above our highs of September but not by very much, maybe about 5% after our run of over 30%.  We don’t mind leaving a little on the table for the current speculators.  We think there will be a good pullback into the spring and we will consider getting back into gold then.  

As for the stock market, we are concerned by the lack of fear and would not sleep very well at this point if we were exposed to long stocks almost of any sector.  Yes, there have been sectors that Have moved up but here we are.  What do you do now but sell this strength.  The rally has carried these stocks up to unsustainable levels.  And, our test for stocks is how they stack up against the new highs in the market.  In general you would think that as the NASDAQ is making new highs, your stock should be making new highs, too.  So, if that is true, then you may consider keeping it, but if it’s not true, you should take a serious look at selling.  

We stand ready to look at your stocks on a technical basis only.  All you have to do is leave a question in the comment section of the blog.  You can even leave it anonymously if you want to.  This will be one of the best selling opportunities of the next two years so we want to encourage you to act.  

As far as AIG is concerned, I remember hearing a lot about the run it had back in late 2003 into early 2004 from about 57 to about 77, a very good move indeed for about four months.  I said in January of 2004 that it would probably go to about 78, which it did and that would be the ceiling.  AIG dropped hard on news to a low of around 50 earlier this year.  Now, AIG has moved back up to near 70, admittedly a good move for the period, but look at where it is in regard to the market and its near term history.  It was 77 two years ago and now it can’t even get over 70.  This is a big sell right now.  

Just as a reminder, when I owned this stock in my 401(k), we were given the opportunity to sell it in early 2002, I sold mine near 80 the first day I could.  AIG is down about 15% since January of 2002 even with this rally from 50 to 70.  This is pure hard technical analysis and, no matter what the fundamentals are, this stock has done nothing for over 3 years.  The fundamentals are probably not all that good with AIG having had a tough hurricane season this year.  

Be careful and be selling, “Cash is king” again.

Dow Industrials:  10,877.51  -35.06
RYVNX:  18.23  (This is an excellent price for you)
TLT:  89.50
BGEIX:  13.87

Thursday, December 01, 2005

First of the Month Rally

Before the US markets opened on Thursday morning, there was news out of the European Central Bank (ECB) that they were raising rates a quarter of a point to 2.25%.  Initially, that drove up the Euro against the dollar but the ECB made comments that it wasn’t sure that it would raise rates again for a while.  After that the currencies went the other way with the dollar again strong.  

The very interesting thing going on in this time is the price of gold and the dollar are rising together.  Of all of the markets, this seems to conflict the most.  Metals, not just precious metals, were very strong today as copper rose to $2.  We don’t typically follow copper but we can look at a chart and see that about a year ago, copper was trading around $1.  (That double in a year is part of the reason we think that inflation is not being reported properly, but that’s another story.)  

Gold and silver were strong performers today with the HUI following suit but lagging.  Gold and silver made new highs for the move but the HUI didn’t.  They were all strong reports and of course we sold out a little too early.  We are still happy with our BGEIX trade earlier this year and we were hoping to get back into it around now.  Unfortunately, we haven’t ever gotten a good pullback in the precious metals so we have stayed out.  We will get another chance but right now, the prices are too high to get involved.

Tomorrow we get to find out about November jobs.  We don’t really think it will set off anything unusual in the market but it’s always good to know what you are facing as you start off the trading day.  Certainly today’s read on manufacturing from the ISM was not really considered at all as the market was well up before the opening bell sounded.  

We would like to thank Chicken Lit… I mean Erick for his comments about inflation after Wednesday’s post.  With the price of the 12 days of Christmas going up only 6.1% I don’t think the world feels too badly about that.  

We did want to make a comment on Erick’s earlier points on the debt situation here in this country.  If you look at the stock market, or the gold market or the dollar, since the middle of October, you see almost a relentless move up in the price of all.  We believe that this is the magic that the Fed delivers.  After the big Hurricanes, the Fed must have done what it always does in the face of trouble, add money to the system.  The economy is said to have grown by 4.3% in the third quarter, we don’t really know how that is possible given the state of the world watching the hurricane coverage.  

The strong move in the stock market suggests that there is plenty of liquidity around and of course the most visible place you will see liquidity of this magnitude will be in the US stock markets.  Our thought on the debt situation is this:  There will come a point, and we think it will be sooner than later, that no matter how much money is available, there will be no one that wants to borrow, maybe more to the point would be that there will be no one that Can borrow due to servicing debt they have already put on.  

We have said this would occur as the housing market slowed and precluded more extraction of equity from people’s houses.  We don’t think that the consumer will survive Christmas in a very good way.  At some point, there will be a sudden drop in liquidity, not because the Fed will tighten the purse strings, but because the consumer will stop spending so much.  We think that has already started.  

We read with interest that the Congress is introducing bills that will force employers to automatically enroll employees in their 401(k)’s.  They would have to match a certain amount but the initial savings rate would be set at 3% and raised a percent a year after that for a few years.  I realize this is a proposal that may not get passed but this seems a little beyond the government’s authority.  Take a look at the articles and give me your thoughts.

Have a great weekend and we’ll try to do better in the coming weeks.  We feel badly that we missed this tradable October low.  We really felt it would hold off until November but we missed it.  Right now, we think the move is near an end, at least near a flattening if not a drop.  Good luck, be careful and be selling these rallies.

Dow Industrials:   10,912.57  +106.70  (after yesterday’s down 82, net about 25)
RYVNX:  18.32
TLT:  89.47
BGEIX:  14.05
(not a good day for us)

Wednesday, November 30, 2005

Gold's New Margin Requirements

The end of the month is upon us and normally it would provide some market strength.  With the huge November rally behind us, that normal month end strength may not be as prominent as the Dow Industrials demonstrated today, dropping about 80 points.  With our stance now being that the Dow hit some firm resistance in that 10,950 area several days running, we didn’t think we would see much strength anyway.  

Normally the last day of the month would be a good time to buy and this month we have seen some good news out of the economic numbers over the past few days.  Today’s news was that the latest revision of third quarter GDP showed an improvement to 4.3% from the previously estimated 3.8%.  Ah, the magic of numbers.  Every time the GDP number comes out, I think about the understated inflation factor.  We have discussed on several occasions the beauty of keeping the inflation numbers down.  The two big reasons are to show better GDP growth and the other to hold down the cost of the Social Security program.  It’s a magic trick.  Sorry, truth in advertising doesn’t apply to government numbers.

The other story that I wanted to mention is about gold.  Gold briefly traded above $500 this week but today dropped about $7.  The mere fact that gold traded at $500 is enough reason for a pullback but there is more.  First, we think that the price movement of the mining stocks precedes the price of the metal itself.  The HUI index has struggled during this recent spurt higher in gold.  That is a warning signal.  

Second, the powers that be don’t like gold as an investment due to the very obvious signal a higher gold price means, lower currency values against the ultimate currency, gold.  This week a new margin level was instituted which makes it more expensive to hold gold futures contracts.  On the surface it looks like a very legitimate move because margin requirements are ridiculously low for most commodities and gold is no exception.

Using the price of $500 for gold and the precious margin requirement, you can buy one futures contract that controls 100 ounces of gold, $50,000 worth, for a mere $1,350, not bad.  The new rules impose a much higher $2,025, which doesn’t seem all that much either, but it is about 50% higher.  This can, by itself, cause the price of gold to drop.  Of course, third is the notion that inflation is under control in this country, right.

Another thing that could be holding gold back a little is the extreme bullishness in the gold market.  As we always say, these are contrarian indicators and we are bearish on gold and its shares.  Today’s down move was more than confirmed by the gold mining stocks drop with the HUI dropping over $7.

In the middle of all the rest is the Fed sitting back and pushing rates up with another one coming in mid-December, the 13th to be exact.  Gold doesn’t really like interest rates moving up because it makes owning the currency that makes babies (interest on your cash or bonds) look better than something that doesn’t have babies.  

The last two things we want to mention are the jobs report that is coming on Friday and tomorrow’s report from the ISM on manufacturing. The jobs report hasn’t seen much play over the past several months and I think it likely that it won’t this month either.  But, you never know since it has had so much influence in years past.  As of tonight, the estimate for jobs is about 220K so you can judge the number for yourself when it comes out on Friday.  The question is what will happen if the number is smaller than that?  Will the market rally due to the Fed’s response?  It is hard to tell but we think the market needs to retrace, at least retrace, some of the gains of the past six weeks so we might as well have the jobs report for a catalyst.

The ISM manufacturing report could have some bearing on the trading tomorrow but I think it is likely the market is waiting until Friday’s uneventful jobs report.  Again, this report has been a market mover in the past but tomorrow…

We believe that market topped in the past week near the 10,950 range and it can trade back up to there if it likes but we will mark that level as our top.  If the market can some how break through that, we would probably need to back off for a few weeks.  We see the market as very overbought even after today’s trading.  Be careful and be selling strength.

I promised to give some more information on Erick’s question the other day but haven’t had room to do so the last two days—we’ll try again tomorrow.  Sorry.

Dow Industrials:  10,802.87  -82.29  (uh oh)
RYVNX:  19.03
TLT:  90.00
BGEIX:  13.68  

Tuesday, November 29, 2005

Bullish Trifecta?

Today’s onslaught of good news caught the bulls a little by surprise.  This was the trifecta of good news that normally would have caused some major upside fireworks, not so today.  Yes, the market did open up on the day with, as an example, the NASDAQ Comp jumping about 15 points an hour into the session.  But, the action fizzled with the Comp dropping a devilish 6.66 to close on the low for the day.

The action in the Comp the last few days has been very weak in the face of bullish optimism for that fantasy Santa rally, or is it the year end rally?  Now the bulls are saying we needed a nice refreshing pullback so we can steam forward into the end of the year.  Today’s news was met with selling and what was the cause?  Well, you know that if the economy is doing well, the Fed will need to continue raising rates, so we better sell some stocks, twisted logic.

You probably have already heard the news but here it is again.  First, the durable goods orders were up much more than expected but I was not impressed with the liberties that the media took today.  The durable goods were expected to come in up 1.5 and the reported number was 3.4.  The article describing this number said durable goods were up almost 3 times the expected amount.  I guess technically they are correct, almost 3 is not the same as 3 but it wasn’t even 2 ½ times as much.  

Second, the new home sales were up, climbing a big 13% from September to October.  The numbers under the report seemed a bit different than that plus the report is seasonally adjusted so any number of things could be in there.  The report on this that will appear in Wednesday’s WSJ says that “many analysts questioned the report’s reliability”.  Following that, the article says that inventories of unsold homes grew. Apparently, home sales in the West region grew about 50% from 311K to 457K, yeah, right.  (Maybe I should say they just about doubled, but that trick has already been done once today.)  This report is on the heels of the report on Monday that indicated existing home sales dropped 2.7%.  In any event, the bond market took a beating today.

The last report was on consumer confidence and that was up a record amount from the report last month after the hurricanes and the huge gas increases.  Now that gas prices have come down, people must be feeling better about their own situations.  

With the Dow jumping early this morning to touch the 10,950 level for the fourth day in a row, we think the market is struggling to stay up here.  The other indexes we follow have not even tried to stay up.  The Dow has now been trying to test the high back in March.  So far, the market has failed to push the Industrials above the mark set in March.  Plus, the market continues to be overbought, use caution.

Dow Industrials:  10,888.16   -2.56
RYVNX:   18.92
TLT:  90.10  (ouch)
BGEIX:  14.09

Monday, November 28, 2005

Turn Around Monday?

When we wrote early Monday that the “morning trading could be the high we have been looking for in this rally” we didn’t think it would last a half a minute.  The Dow opened up about 25 points and decided to set that as the high mark of the day.  This Monday morning top has the potential to be the end of the top that has been forming over the past few days of trading.  Monday the bond market picked up some strength and took in some of the money that was leaving the stock market.  However you choose to look at the action on Monday, you really can’t be that bullish, many are.

In the news today, Merck said it would be laying off 11% of its workforce or about 7,000 people.  The news was not good for investors as they apparently were looking for “fresh ideas” not just mere layoffs.  The stock decided to drop nearly 5% on the news.  The price is well off its lows of the year but this stock has not had good results especially since the news of VIOXX hit the wires.  Back in late 2000, the stock traded around 90 and today closed just under 30.  No, there wasn’t a three for one split, the stock value dropped by 2/3’s in the past five years, another poster child for taking profits in this current market.  

The biggest news today, as we see it, was the existing home sales which showed a decline which was more than expected.  More importantly, the inventory of homes for sale rose to a very high 4.8 months giving buyers a little less motivation to buy at the list price.  This is what is known as a buyers’ market.  So, while median prices have risen 16.6% over the past year, sales have dwindled a bit with more weakness expected.  Housing slowing down is the event that we think will be the driving force in the next big recession and market decline.  We have seen various signs of the housing juggernaut slowing.  

Erick raised some questions out in the comments section and I will try to answer them more fully Tuesday evening but wanted to leave one thought before a close this post:  The consumer here will have trouble sustaining the current level of demand for foreign goods, other than oil, and this alone could cause a global recession.  As you mentioned, the US is the bully in the lunchroom.  More tomorrow…

Dow Industrials:  10,890.72   -40.90  (so far, missed the closing high by 9 points)
RYVNX:  18.75
TLT:   90.96
BGEIX:    14.15  

Shopping Seems Strong

The stock market is looking to continue gains from the past week as we have seen strength, without a lot of power.  The Dow Industrials have pushed up to the annual highs we saw in early March just over 10,900.  The weekend shopping is said to be up considerably from last year at least among preliminary reports so the market has no worries: the consumer seems to be impervious.  The Wall Street Journal reports that shoppers are as “reliable as ever”.  

As we assess the stock market as well as the precious metals, we see them being more over bought than normal with bullishness running high, marks that bring the contrarian out in us.  We see historic opportunities for people to sell here.  There are so many pitfalls in trading the stock market but one of the worst is to get bullish when the party is almost over.  

We remind you that we are just now seeing the Dow match its high of earlier this year.  This is not a sign of a healthy market.  People are bullish without prices actually going up.  We aren’t sure but Monday morning trading could be the high we have been looking for in this rally.  The overnight markets are running high in anticipation of a good up opening but we know from experience that this is not such a good thing.  Monday’s are normally stronger than other days of the week but we have seen prices up for about week in a row without a pause.

We are posting on Monday morning for a change and we can see that the party is certainly going strong for the opening.  We are near the end of the month, a typically stronger time for the market.  These are treacherous times to be buying and we recommend taking advantage of the high prices to sell.  Be careful.

Dow Industrials:  10,931.62   +15.53
RYVNX:   18.39
TLT:   90.51
BGEIX:   14.08

Tuesday, November 22, 2005

Is the Fed Done With Hikes?

Seeing the Fed minutes caused a big up move in the middle of the day.  The Fed seems determined to slow these rate hikes down based on the minutes that were released today.  In the grand scheme of things, we think that the rally in stocks over the past several weeks to have been related to this ultimate decision to stop the rate hikes soon.  The market doesn’t really have a big problem with rates where they are because they are still very low.  Longer term rates have been relatively stable when compared to the short end of the curve where the Fed has some juice.  

The precious metals have also seemed to be anticipating a slowing the interest hikes.  This is for a much more sinister reason, higher inflation.  The precious metals can take flight in the current situation because rates are Too low for the current rate of inflation so precious metals think inflation will continue to percolate.  

Today’s action in the stock market seems too perfect.  The momentum indicators have been weak relative the last highs so the market is certainly overbought, and that includes one of our favorite indicators, the 5 day upside volume, which is over 1,000,000 shares again.  The number of stocks trading at new annual lows has been persistently high during this period too while the number of new highs has been subdued.  Today’s volume was decent but not great.  

We are leaving you with a few days to forget about the market.  Tomorrow will be nothing short of boring and Friday will be a quiet day with light volume due to the shortened trading session.  We don’t plan to post until Sunday evening unless something very unusual occurs tomorrow.  

I bid you a Happy Thanksgiving however you decide to spend it.  Those of you who still read these posts, I am thankful you do.  

Dow Industrials:10,871.43  +51.15   (Unbelievble)
RYVNX:  18.52
TLT:  90.53
BGEIX:  14.09  

Monday, November 21, 2005

Dow in the Black for 2006

So, the Dow is in positive territory for the year as of today.  Now, I get all the bullishness.  Or maybe I don’t get it.  It appears that the market wants to edge its way up to get the Dow to a new yearly high but the excitement of just eking out a positive return for the year today just leaves me cold.  

You have been given a good opportunity to sell into this excessive up move so I hope you take the opportunity to do just that.  With the end of the year approaching, there is hardly a bear in sight.  It reminds me of ‘Twas the Night Before Christmas, no one was stirring, not even a mouse, no bears either, they’re all in hibernation.  I know it doesn’t rhyme.

Out in the comments, Erick has left us another question/statement that I’d like to comment on.  He asks if the Global economy has entered a period of market diversity that squeezes out the idea of recession.

Our answer is that the US as a whole has paid for no recession by borrowing money.  The account balance with the world is extremely negative and that fact alone has helped the rest of the world stay out of recession.  We keep buying foreign goods and they have kept buying our debt with the money we spend.  The rest of the world is more than willing to take our money and give us their goods, especially China.  We, here in this country, have been borrowing money to support our spending habits and have not let the economy suffer, just our balance sheets.  I say that in terms of having moved into home equity lines of credit or simply refinancing to get more money.  As housing prices have advanced that has not been a problem; but, now that housing prices have come in a little, there is a danger that the consumer may pull in their horns.  Christmas is right around the corner and the consumers will show their hand.  The holiday shopping spree may still be intact but the heating bills are coming to put a dent in the consumer’s spending habits.  I say, the day of the soft landing here in this country is probably behind us, 2006 will be a very challenging year.  (Erick, sounds like you had a nice trip including all the biking.)

Dow Industrials:  10,820.28   +53.95
RYVNX:  18.69
TLT:  90.41
BGEIX:  14.02  (gold stocks are at yearly highs too)

Sunday, November 20, 2005

Short We(a)k Ahead

The market has a four day trading week this week and Friday should be a light trading day.  We don’t have any reason to change our stance on the market at this time.  Our momentum indicators have just failed to confirm the new highs created in the market late last week, giving us added information to stay the course.  The bullish sentiment being exhibited in the market place is the best indicator for us contrarians.  

Right now we see the picture unfolding quite like we anticipated earlier this year.  The bond market did push rates up somewhat and that is being blamed for the current housing dent that is occurring.  So, as rates come down, they say, housing will pick back up.  Actually, the media is starting to present somewhat bearish comments on housing, mostly due to the up tick in rates.  

Here’s what we see:  Gold is in the process of peaking, the stock market is peaking and not confirming the highs, the dollar is peaking but Treasury bonds are firming up, maybe signaling a recession coming up right around the corner.  We don’t like predicting recessions but we like to anticipate what the market wants to do.  We have been on the short side since early October and recently that call seems to have some holes in it.  On the other hand, the market is getting tired.

We note that last week was options expiration which naturally contributes to a somewhat unpredictable week.  We’re not trying to rationalize our position, just making statements about options expiration.  The artificial highs set late last week should be retraced starting on Monday.  Normally, Mondays are strong days but this week may be different.  

There are very few asset classes that make reasonable sense to be in and we remain with the mantra that “cash is King”.  We recommend staying away from the market and gold, too.  The only place to be long right now in this country is the Treasury bond market.  We have been sitting in the TLT’s for about a month and have seen no net change in the value of our asset.  This is a good thing since we saw a drop of about 3% going into last week, being back to even feels much better.  

Dow Industrials:   10,766.33  +46.11  (looks like a big number)
RYVNX:  18.82
TLT:   90.14
BGEIX:  13.59

Thursday, November 17, 2005

Just Another New High in NASDAQ Comp

The NASDAQ Comp put in a new high for the year and for several years on Thursday.  I concur with Erick’s comments yesterday.  The market really hasn’t done that much this year and the new high today has now brought the NASDAQ Comp to 2.5% gain for the year.  Being in cash for the year would have netted you 4% probably.  This is very exciting and all but the move is only a short term move.  

The market is not a very good place to have your money due to the lack of a definitive move.  We have been short from the first of October and thought we had picked the best place to do that but the action since the middle of October has negated all of it.

The new high in the Comp comes at a time when the participants seem very bullish so I’m confused as to why the market is accommodating the bulls.  We have obviously been on the wrong side of this move since October and don’t like it.  Every day I think the market has had enough upside and then some more money comes in to keep it going up a little.  

The fact that the Comp hit a new high for the year should be bullish but the momentum indicators just do not confirm this.  Even the volume was not confirming the up move on Thursday.  Yes, upside volume was strong but it wasn’t blow out strong.  If the market can’t mount a decent burst in the morning, we would say that today’s rally was a good time to unload some stocks.  

Writing a stock market post is a difficult thing due to the tremendous urge to follow your emotions.  We constantly talk about selling relative strength and buying relative weakness.  So, we will talk about it again.  This move is just about over and only needs a little push to send the market going in the opposite direction.  Just because it has gone up does not mean it will continue.  If you have missed the move from the lows of October, then you probably don’t have much left on this move and you shouldn’t now try to get in.  

I bring this October low up just because back then there was some fear and nobody really felt confident that prices were going to go back up ever.  Today, there is great confidence that the market can’t really go down before the end of the year… You make the call, because you always do anyway.  I’m just here to provide a little contrary thinking.

In the news, HPQ reported a 62% drop in profit but raised its forecast for this quarter.  Revenues were up but the company said it had one time charges that brought earnings down.  Hewlett Packard was up in after hours trading.

GOOG managed to push over $400 on Thursday in what can only be described as speculative trading.  The stock has now surpassed Coca-Cola, CSCO, and Time Warner in market value and sits on a 90 PE ratio.  Yes, its forward PE ratio is near 50 but that is yet to be seen and carries only a little weight with us.  Congrats to those who bought this stock at the beginning of the year near $200.  I feel sorry for those that have paid $400.  The believers in this stock are now pushing up their price targets.  Does anyone remember the 1999 to 2000 market?

The GAP experienced a gap in earnings as they fell 20%.  Disney saw its net drop 27%.  But, the big news as we read it is Housing starts which dropped about 6%.

The housing juggernaut is still mighty big but the air is starting to come out of the market.  Whether due to the high prices, higher heating costs, higher interest rates or just the economy, we are starting to see various signs of weakness.  This should lead to a downturn in the stock market as well.  We remain bearish tonight, oh really.

Dow Industrials:  10,720.22  +45.46
RYVNX:  18.89
TLT: 90.56  (one bright spot)
BGEIX:  13.61  (new high for the year here)

Wednesday, November 16, 2005

All Markets Up Except Stocks

The stock market has spent the last three days working off the overbought condition it found itself in last week.  One of the interesting things about this is the complete absence of bearish press, except here, of course.  After last week’s high, we have seen a lot of complacency again as to the Santa Claus rally.  When stock owners decide selling can wait, usually the market has just rallied and given them a good chance to sell.  When they normally want to sell is into fear, not strength.

The cross currents in today’s markets were fascinating if you pay any attention to the markets we follow.  The inflation data was mild and the dollar went crazy at the open, the bond market was up and gold was soaring.  Meanwhile the stock market was meandering all day long, truly an odd combination of events.  The Dow squirted ahead about 30 points at the open and then slowly leaked all day to end down about 11.  

The CPI reported out at more than expected but not much out of the ordinary and since the market doesn’t seem to care about inflation, there was no noticeable reaction.  Do recall that gold was up and up big at $10 an ounce, some of which happened before the CPI was released.  The other big move today was in natural gas, which spiked about 7%.  The price of natural gas had traded as high as 15 right around the hurricanes and then traded down to about 11.  Today’s spike took it back up over 12.  You may not recall but the price of natural gas spiked to 8 last November so we are at least 50% higher than last year’s high.  

Some news we didn’t have room for last night was the price of GM which made another multiyear low today.  Last Friday, GM traded around 24.5 but has dropped the last three days and today closed at 21.29, about a 15% drop.  I guess we should consider GM a finance company since about all it does is loan money to buy cars.  So, its counterpart in the mortgage finance business, FNM, Fannie Mae, has not been doing too well the past couple of days either.  FNM is not now punching into multiyear lows but is very close to doing just that.  For its part, FNM was only down about 4% the last couple of days, but in a dull market, a big mover tends to get noticed.

Finally, AMAT announced tonight and said its revenues were down about 22% from last year but somewhat above what was expected.  Profits, on the other hand, were down nearly 50% from last year.  The price of AMAT has recently been very close to what it’s been for the past 18 months, in the 16-18 range.  After the news, the stock jumped a bit over 18 but didn’t hold it and closed down about 50 cents at 17.24.

In other news, the Senate approved a pension bill that would raise premiums paid to the PBGC, Pension Benefit Guaranty Corporation.  This is the organization that tries to protect the defined benefit pension plans of failed corporations.  These plans have some latitude in their assumptions of future returns and can be seriously under funded in a low interest rate environment.  Today’s bill is designed to give the airlines a chance to fully fund their plans over a 20 year period.  That seems mighty aggressive given that they are in bankruptcy and probably will be for a while.

Thursday we get to find out about October housing starts.  We are anxious to hear what this is due to our interest in the real estate market in terms of the stock market.

The next week we are going to modify the post schedule due to the Thanksgiving holiday.  Sunday, Monday, and Tuesday will be normal posts and then probably not another one until the Sunday after Thanksgiving unless the market action requires it.

Dow Industrials:  10,674.76  -11.68
RYVNX:   19.46
TLT:   90.34 (finally back above our purchase price)
BGEIX:  13.30  ( we exited at 13.34 on 9-21)

Tuesday, November 15, 2005

Retail Sales, Up or Down?

Tuesday showed the market’s inability to sustain a rally. The volume was stronger than we’ve seen over the past two sessions but not huge. What was interesting was the number of 52 week lows on the NYSE, 197, the highest since the 27th of October when they registered 218. The thing is that the market was considerably lower then. The little telltale signs that things aren’t what they seem on the surface.

We need to take a paragraph to report on the two articles that caught our eye the last two days. One was in the WSJ and the other on CNN, money.cnn.com. Both were about the real estate market slowing down a bit. CNN’s headline was “Outlook sours for real estate” and the WSJ’s article was “Housing Market Shows Further Signs of Cooling”. You can read both of them yourself but the articles are very much in line with our thinking over the past several months—real estate is turning over. We strongly believe that the real estate market going down will drive the stock market down. You know that there is a lot of talk in those articles about the slowing, not the turning, of real estate. Many are predicting continued gains in prices next year but just not as much as the last four years. Please, what do they really know?

Retail sales fell 0.1% in October after rising 0.3% in September. The headline was bullish, like the media wants to be. The headline in Wednesday’s WSJ reads “Minus Autos, Retail Sales Are Solid”. By extracting the auto and gasoline sales out, retail sales managed to increase 1.1%. Seems every time we have to report a bad number, we can take something out to make it look just right. It’s a Goldilocks situation.

The same holds true for the PPI announcement (and probably the CPI number on Wednesday). The PPI rose 0.7% last month after 1.9% in September and 0.6% in August for a three month additive total of 3.2%, but, not to worry, because the core PPI dropped 0.3% perfectly offsetting September’s rise of 0.3%. Goldilocks again.

One of the big news items was that Johnson and Johnson (JNJ) seems to have gotten it right this time in their buyout of Guidant (GDT). The news was that JNJ got a 15% cheaper price this time due to the drop in the price of GDT since their initial bid. I only point this out because the big market rally (sarcasm) didn’t take GDT up with it. Many stocks rallied strongly in 2003, like GDT, but since the beginning of 2004 we have mostly stagnant prices in many sectors.

In other news, AMZN will be inducted into the SP500 replacing AT&T which is being purchased by SBC Communications. The company jumped 5% on the news. The SP500 companies must have a market cap of $4 billion and post four straight quarters of positive earnings. The four straight quarters of positive earnings has kept AMZN out of the index in the past, very strong company (you guessed it, sarcasm). It’s these types of moves by the SP500 that tend to make being in an index fund based on that index a little questionable.

There were some interesting developments in the Retail sector. Monday evening Target Corp, TGT, based here in Minneapolis, said November sales would fall short of forecast and last week they said they expected slowing growth in the fourth quarter. TGT fell over 7% on the news in Tuesday’s trading. Other retailers followed suit as Best Buy, BBY, fell about 5% Tuesday as well. One of the catalysts for the sell off is the behemoth in retail, Walmart, WMT, who announced some positive forecasts for Holiday sales. So, WMT has run up since the middle of September when it was at 42 to near 50 Monday. Don’t forget it traded above 50 and it was 54 in January and over 60 in early 2004. Again, very bullish. (yes, sarcasm again)

Well, Wednesday we get the CPI and the contortion of numbers continues. The news will be muffled and the markets probably won’t pay any attention to it.

I apologize for the length of the Post this evening but there were just so many interesting things and I still didn’t get to report on all of them.

Dow Industrials: 10,686.44 -10.73 (NASDAQ COMP was down 14.21)
RYVNX: 19.63
TLT: 89.40
BGEIX: 12.68

Monday, November 14, 2005

Flat Line Stock Market

Normally, Monday’s show stock market strength but today we saw only dullness.  The New York Stock Exchange volume turned in day much like Friday with fewer than 1.4 billion shares traded.  For its part, the Dow Industrials traded in a narrow 30 point range for the day.  We like to find something out about the market everyday but the last two days have shown very little in the way of new things.  The market has the capability to turn down on a moment’s notice and we need to be aware of the slightest change.  

The dollar continued its recovery today as it made a new relative high just over 92.  The dollar index has fallen steadily from 2001 around 120 to its low late last year around 80.  The recent corrective rally has taken the greenback up about 30%.  The dollar may try a little more rally but in the end it will fail to get even close to that 120 of four years ago.  With the massive twin deficits, we expect tough sledding (Santa Claus reference for you) as the dollar runs into some trouble right about now.  

With the continued dollar strength, you would think that gold would be showing signs of weakness but it has been rather strong the last few weeks.  We don’t expect these asset classes to move together for very long but we do think a gold correction is in the making.  We continue to be patient; we’ve already had a good trade in this sector this year and we don’t want to be greedy.

Maybe we will get some information out of the stock market tomorrow.  We will get the PPI, producer price index, tomorrow as well as retail sales.  The sales number will get some attention tomorrow.  I don’t think anyone really believes the inflation numbers so no one gets too excited about them.  But, we will see…

Dow Industrials:  10,697.17  +11.13  (getting close to 10,700)
RYVNX:  19.46
TLT:  88.82  (maybe we are seeing a bottom forming)
BGEIX:  12.86

Sunday, November 13, 2005

Over Bought Stock Market

Friday’s trading gave us little in the way of new information but the stock market remains overbought and should be avoided.  The complacency and bullishness is noteworthy.  With the major indexes, Dow Industrials, SP500 and the NASDAQ COMP, all below their highs for the year, the bullishness seems a bit unfounded. The media has created a bull market going into the end of the year.  Is that even possible?  Since when did the media become the experts on the stock market?  

Please measure your exposure to the market and determine if it is the appropriate level.  We have the worst of both worlds going on here.  The media is convincing people that they better get on this Santa Claus bus before it’s too late and people are doing it.  We believe this is the worst time to be exposed to stock market risk.

The biggest reason to take shelter is that market leadership has disappeared. Yes, recently some of the financial stocks have stepped up a little bit but not all.  The big leaders, the oil and housing sectors, have disappeared.  

Speaking of market leadership, Erick had pointed out an article in the WSJ that indicated there were some value stocks that we might be able to pay some attention to given a good opportunity might arise.  I looked at those stocks and found one, JEF, an investment brokerage company, to be of some interest.  The problem is that it has jumped a bit, along with several other brokerage firms and we should look for a better price at this point.  I believe that better prices are just around the corner for many stocks.

I’m not going to mention the other stocks because they didn’t look as interesting until their price gets a little higher if you can believe that.  I think they have run into some resistance here at these levels and could also be purchased with a decent pullback.  We will continue to watch them for a while as we would like to be prepared for some good stocks if we ever could find a good low to trade from.

There are a couple of things to watch for this week:  Bernanke is scheduled to appear before the Senate confirmation hearings, both the CPI and the PPI come out this week, as well as Retail Sales.  Since nobody eats or uses energy, the CPI and PPI are only considered without them (how preposterous) and they are both expected to rise 0.2%.

I think you should take a quick look at the True Contrarian link to the left.  He updated on Sunday evening and provides some food for thought for the current environment.  We both think the gold complex is too pricey but his thoughts on the stock market are worth reading.  

Dow Industrials:  10,686.04   +45.94
RYVNX:  19.42
TLT:  89.49  (bond market was closed on Friday)
BGEIX:  12.96

Thursday, November 10, 2005

INTC to the Rescue

The market enjoyed a big rally today pushing the Dow Industrials above the 10,600 mark and moving the other major indexes up near their highs for the year.  Notice I said “near their highs for the year”, not to new highs for the year.  It seems there is exceptional bullishness backed up only by stocks nearing their highs made this summer.  Plus, the market is in the over bought territory tonight.  The volume was better than average but not as much as we saw last week.  Many technical indicators in today’s market were just not what you would like to see for a good start to an up move.  

We have said that the market will make a new low for the move during this month and today’s rally helps destroy that theory.  We don’t want to be stupid about staying in our positions but our indicators are over bought and not as strong as we have seen.  

The news for consumption really isn’t that good either.  Today we saw a new world record trade deficit around $66 billion for the month.  GM hit a 23 year price low today.  Delta Airlines reported a $1.13 billion loss.  The tech group’s darlings CSCO and DELL have basically fallen down and they can’t get up even in a market like today.  

But, INTC saved the day today by announcing an increase in their dividend and a $25 billion stock buy back.  One of my reads tonight said that INTC only has $12 billion in cash so there might be a windfall somewhere.  The lottery is only at $25 million for Saturday night.  The article also mentioned that their cash position dropped from last quarter to this quarter so that windfall better hurry up.  Of course, company buy backs that are announced in advance don’t Have to happen either.  

The University of Michigan Consumer Sentiment Index did improve and was above expectations.  The bonds had a good day today but that isn’t necessarily good news for the stock market.  The bonds are in a fairly strong down channel that I have hoped would be broken to the upside for a short upside run.  Today just gets them back to the top of the channel.  We would need to see a bit of a breakout from here to feel like a good strong rally was in the making.  (Refresher, down channel means that the bonds are in a little downward sloping zigzag pattern.  The breakout would mean the down channel was broken and the bonds could move up.  If bonds move up, then rates move down.  Got that?)

Friday is Veteran’s Day and the banks are not open so the bond market is not open either.  The stock market is open but without bonds trading and with banks closed, trading should be subdued.  We are looking for a calm day on Friday and will report any new information on Sunday evening.  Have a good weekend.

Dow Industrials:  10,640.10  +93.89
RYVNX:  19.46
TLT:  89.44
BGEIX:  12.64

Wednesday, November 09, 2005

CSCO Disappoints

Today being Wednesday, you might think that we would have a lot to say.  Instead, the market has turned fairly dull again and there is little to talk about.  In terms of news, GM said it would restate earnings for 2001 and maybe more.  GM’s price decided to drop to the lowest level since 1992.  We’re certain that Kerkorian is not that happy about the whole GM idea.  You may recall, his comments about taking a large stake in the company pushed the price up momentarily to 31.50 from a low of 25.48 about a week before. The price has slid almost daily since then to today’s closing price of 24.63.

CSCO announced earnings tonight.  The earnings news wasn’t bad but the guidance for the next quarter’s revenue was less than the market wanted.  The stock initially liked the numbers and rallied above 18 but by the end of the evening session the stock dropped down to 17.40.  

Tomorrow, we hear from DELL who issued a warning last week.  This stock has had a rough go of it since last quarter’s earnings release.  The stock was trading around 40 back before then and tonight it closed at 29.  This is a rather large drop in a “bull” market run.  DELL did not participate in the October rally that moved into November.  

Precious metals had some luster today as gold moved up about $6.50 and the HUI was mostly in line with that up 7.20.  It was a nice day in the complex but we are maintaining a stay away attitude for now as we wait for better prices in the mining shares.  

Our attitude for the stock market is that we have seen the run that we are going to see.  We have thought that the excitement of last week would turn into a steady market so the bullishness can be felt by all comers.  People like to buy in this type of market, one that has moved up and is basking in the sun.  We usually think this is a good time to Sell, not to enjoy the scenery and buy.  The move might be followed up by another strong move up but I doubt that is going to happen.  More likely the market will continue its dull trading here for another day or two and then start heading down into the end of the month.  The bulls are tired, as well as fat and sassy right now.  

Dow Industrials:  10,546.21  +6.49  (another powerful up day)
RYVNX:  19.97
TLT:  88.36
BGEIX:  12.74  (time to start watching this one again)

Tuesday, November 08, 2005

TOLL Takes a Toll

This morning caught the Toll Brothers with their pants down, no just their earnings guidance was down.  The report in the Wall Street Journal on Wednesday will report that orders rose 1% in their fiscal fourth quarter ending October 31.  A UBS analyst said she expected 22%.  Orders fell 10% in the Mid-Atlantic, 5% in the Midwest, and 50% in the West.  Toll Brothers dropped 14% today on that news taking the HGX, Philadelphia Housing Sector ETF, down 5% with it.

I think we are seeing more and more evidence that the housing juggernaut is slowing receding.  If you were to look at a chart of the HGX you would see a large rise since the beginning of 2003, shortly after it started.  The price started near 200 and topped out in the first week of August this year just over 585.  So, the Bond market topped out in June, the HGX topped out in August, the hurricanes were in September and here we sit in the midst of a stock market rally.

Now, Toll Brothers, TOL, said that consumer confidence has dropped resulting in people taking more time to make decisions on purchases.  They also cited the recent spike in gas prices after the hurricanes.  I’m a little confused by this since they service the luxury market supposedly.  Why would the luxury market worry about the price of gas???

Anyway, TOL traded at a record high of 58.67 in late July and closed today at 33.91.  The housing sector has been the big stock market leader for the past three years and now it has lost its leadership quality.  This is not a good thing for the economy or for predicting a bullish trend going very far into the future, when the leaders fall, the rest run away.  

Today’s market was again dull trading very little volume and trading down just a bit.  We stick to our bearish stance and advise that you be very careful.  The market has given you some confidence for a bright Santa Clause rally.  You should be careful that you don’t get a lump of coal in your portfolio.

Dow Industrials:  10,539.72  -46.51  (still in the 10,500’s)
RYVNX:  20.01
TLT:  89.28


Monday, November 07, 2005

Market Up Again

Today the market decided to sit on its hands.  Yes, the Dow was up about 55 points but the dullness of trading was evident in the light volume.  For Monday, the market was not as strong as one might have imagined.  The market has begun to roll over again and probably will catch many off guard.  There are so many people right now who are willing to believe the bullish scenario of the year end rally.  We have seen a powerful rally for the last week and of course immediately everyone is bullish.  At the same time, many stocks are not trading with any real strength.

We continue to think that the market can drop into the end of the month and we are voting with our pocketbook.  Yes, we have lost some money over the past week but the possibility of a rout was high about two weeks ago.  That was averted and here we are again in the 10,500’s with the Dow.  

The precious metals are still looking lower and we see some of the stocks in the group as beginning to show signs of holding up in the face of declining gold.  In order for us to get excited about the mining stocks, we need to see the metal drop while the stocks kind of hold.  This could be starting as we speak.  We will be watching this carefully over the next two weeks and looking for some good entry points. The dollar broke to a new high for the move above 91 and that is hurting the metals prices, just something else to help us find a good entry point.

The real estate market keeps getting bad news.  The interest rate on fixed rate home mortgages now sits right around 6.3% after being around 5.5% in July.  This along with the news on the proposed tax law changes is starting to wear down the real estate market.  The housing boom may be ready to take a breather.

Dow Industrials:  10,586.23  +55.47
RYVNX:  19.98
TLT: 88.42

Sunday, November 06, 2005

New Week, New Challenges

I guess the big news today, although not really a Wall Street item, is the tornado that hit the Evansville area. The national news carried some of the story today as we continue to see the weather do unusual things. An F3 tornado is not something that normally occurs in the wee hours of the morning in the middle of November. We hope that everyone there is ok.

The jobs report on Friday was quite weak and well below expectations. Some of us would have expected that to help the bond market a little but it continued its Bernanke retreat. The dollar jumped for some reason but it wouldn’t seem that the jobs report would have caused it. A weak reading from the jobs should translate to a weaker interest rate environment but when the dollar didn’t get sold after the jobs report, they seemed to just go ahead and buy it.

Precious metals, taking their lead initially from the jobs report by jumping on the weak data, dropped in response to the dollar’s exceptional strength. Gold was initially up about $3 on the jobs and ended up dropping $9 from there, down about $6 on the day and ending down about $5. The currency markets (forex for foreign exchange) and the precious metals showed the most response to the jobs market. The stock market was subdued.

We start a new week and with it we start to deal with new challenges. There seems to be much bullishness in the press over the weekend about the prospects for the rest of the year. We do not hold the same opinions due to the lid we see the market has built for itself over the past couple of years. There is always a chance that the market can break out from here but since it hasn’t we must remain bearish. Yes, we missed this latest move out of the October lows but the October highs are still in place for most of the major indexes. Most, except for the one we are short in the RYVNX which has broken below our entry point. We think it a matter of a couple weeks before we are back to the lows of the October in the major indexes. This week’s trading will be telling.

By the way, Erick, please share the picks that you alluded to in your latest comment. We do want to be ready for a bit of a rally out of the lows we are expecting here in the next couple of weeks.

Dow Industrials: 10,530.76 +8.17 (10,500 still)
RYVNX: 20.01
TLT: 88.12