Thursday, April 28, 2005

GDP Deflator

This morning's GDP announcement didn't get a good reception on the Street. Of course, the stock market Deflated some on the back of that, with Dow down about 128 points. The NASDAQ Comp decided to close at a new low for this move down near 1900.

The GDP did have a bit of a surprise in it after all: The deflator, the estimate for inflation's contribution to GDP, was 3.2% compared to an estimated 2.1%. What that says is the inflation rate is running at 3.2%. How does that make the Fed feel? They have to meet next week to decide the new interest rate. The economy isn't growing as fast they had hoped, 3.1% versus an expected 3.5% and the deflator is sitting at 3.2% and don't forget that the funds are at 2.75%. This is what we have been talking about--the economy is slowing so the Fed would like to ease but the inflation rate is still above the funds rate. What would you do? We still think they will raise rates 25 bps next week but we are getting less convinced about the next time they get a chance to move them. They probably will sacrifice a little inflation if the market or the economy are not performing to their liking.

That reminds us of the gold market and how it could very easily perform great in the environment where inflation is rising and the economy is not and the Fed can't raise rates. We are keeping an eye on the complex and today the spread on the Gold price to HUI moved higher again, to 255. Gold stocks are just getting hammered while the metal stays afloat. We would be more anxious to buy the stocks if we could see the price of gold come down and the commitment of traders improve. So far, that's not happening.

Tuesday, April 26, 2005

Another DOWner

The market did its best to run up this morning led by none other than the SOX, where we have several short positions. But, by day's end, the market slid to almost a 1% loss in the Dow. This volatility in the market should not be construed as bullish but that doesn't mean the market can't go up again tomorrow. In fact we are looking at the end of the month and how strong that period can be for the market. It doesn't have to be this time or any time.

In any event, this is a tough market to trade and to get excited about on the long side. With swings like we've seen recently, there isn't much confidence in a strong performance. That doesn't mean there will be selling but selling does seem to appear and doesn't allow the market to creep up in any sustained fashion.

Gold was up a couple of bucks today and actually made a new high for the move against the Euro but the HUI fell creating a spread of 252 points, a very wide spread indeed. This complex bears watching for opportunities and we are watching it. When a good opportunity presents we will announce it here or in the Wednesday Update.

Monday, April 25, 2005

Getting an Early Jump on the Month End Rally

Today's market while higher didn't trade in much of a range. It basically stayed up all day long. The month end strength that normally shows up usually doesn't show up this early but it does look like it today. We are not surprised by the strength in the context of the timing but we have been waiting patiently for this upside to be over. We continue to wait.

The interesting trading we saw today was in the gold and gold stocks area. We like to see early morning weakness when we are thinking about buying and today the precious metals were very weak at the opening bell. As the day wore on, the HUI index moved from being down almost three points to up almost a point. This is a good turn around day and should be the first of many as we move through the next several weeks. We are anxious to buy these stocks but will wait for tonight. We are getting very close to buying them and as you see morning dips like this morning, you may want to begin to buy them. We wait.

Sunday, April 24, 2005

Friday's Weak Performance

Friday, the stock market couldn't remember that the day before was a powerful up day and decided to roll over and play dead. At least, that was true until the last half hour when there was a blistering rally taking it up about a hundred points in the Dow.

The market is facing the last week of the month and we usually get some kind of strength in the last few days of the month. We will be watching carefully come about Wednesday for possible late month strength. This month could be different just because the market has turned down in earnest and it could struggle for the next several months.

That said, the market is over sold tonight as we look at it. So, there is some potential for more of a bounce but the market is exhibiting extreme weakness. Friday's trading should have followed through on the big 200 point rally on Thursday but it didn't happen. We are holding our positions.

Thursday, April 21, 2005

Dow's Big Comeback of 200 Points

The market showed signs of life today as the major indexes posted huge gains in a rally that was both broad based and backed by solid volume. Our main indicators have shown some signs of a bounce and today's fits that category. The problem for the bulls is that today probably represents the bulk of the advance. Those who get in tomorrow will probably not get to see much in the way of gains.

Our portfolios took a beating today, especially the Margin account due to the heavy leverage we carry there. We do not believe this rally can carry much further and will stick with our current positions. One of the main reasons to be cautious in the bullish case is the fact that the NASDAQ moved up quickly to resistance. Further upside should be muted. If we do see some solid upside over the course of the next few days we will try to put the rest of our cash to work.

Today, gold was a little laggard compared to the broad market. We are keenly aware of our desire to invest in this market near term. We watch the HUI index for signs that last week's low of near 180 will hold. If it can we may take a run at these stocks. The possibility remains that the dollar's rally is over and it is gold's turn to run again. We want to be sure that the HUI holds 180 before we make a move.

Tuesday, April 19, 2005

INTC and YHOO Report

In an effort to modernize the Wednesday Update and make it more responsive to daily changes in thoughts, we are moving to a blog. The intention is to make tracking both ideas and trades easier. Please include your thoughts and ideas so we can share them with all of our readers.

Tonight's thoughts are about INTC and YHOO, both of which reported earnings and they were basically higher than expected so both stocks moved quite a bit higher in after hours trading. We felt that the break in the market last week could possibly create an oversold condition and apparently it has. The market rallied today and pushed up more this evening with the announcements from several companies. The ones we are really interested in are INTC and YHOO. Since we have a lot of puts in these positions, we probably should have taken the time to unload them for this quick up move but we didn't.

Tomorrow's Update will be more explicit on what we will be doing but for tonight, we must learn to be more nimble in our trades, especially in short type investments. The Update has tried to maintain a weekly trading standard that has been modified somewhat recently with Alerts. We need to take full advantage of severe moves in the market, especially when we own puts.