Tuesday, May 31, 2005

Hi Oh... Silver

Today the market decided to go down, particularly at the end of the day, even though the dollar got a lift from the Euro's beating after the French declared they wouldn't ratify the European constitution. With the dollar's strength we thought gold would react negatively and it did, initially. Gold gave up about six dollars in the early going only to see a nice rebound in the middle of the day. Bonds were very strong today getting a boost from the dollar as well.

Silver was the star precious metal today after opening down about ten cents, it managed a gain of about 15 cents. In normal circumstances you might call that a pretty good day, allowing you to buy a nice drop in the morning. PAAS traded down to 13.21 early this morning only to end up 51 cents at 14.29. Not a bad day trade.

There was a comment on yesterday's blog asking for a comment on why anyone should buy precious metal stocks due to their poor valuations. My short answer is that mining stocks, like any other stock, need to be judged not on the past but the future prospects. For mining stocks, if the price of the metals go up, the value of the mines these companies own goes up. It's kind of like what might happen to GM if all of a sudden they could double the price of their cars, they might actually be able to stay in business :-) But, if you can guess at the amount of silver or gold these mines might have, you could say the company is worth what is in the mines less what it costs to get it out and sell it. If their costs don't rise, and your prices do, you have a winning combination.

That is one of the reasons I like the mining stocks and the precious metals themselves, you have more clues as to how the business is running. You have the interaction of the price of the metals with the price of the stocks. The more hints you have, the better you can trade.

Plus, based on the Price of these stocks the last two weeks, rising about 12.5%, their PE ratios have gone up some more. And, if you didn't buy last week you are having to pay higher prices this week.

Look for the Wednesday Update in your email. Lot's of other news tonight, like AIG finally got their earnings out and now we know who deep throat is--not that it's really germaine to the stock market. Too little time...

Dow Industrials: 10467.48 -75.07 (oh oh, under 10,500 again)
BGEIX: 10.20

Monday, May 30, 2005

The French Say NO

The vote in France was NO over the weekend and predictably the Euro dropped with a similar drop in gold due to the dollar's advance. This was the big news for the market we are currently following, gold. This should give a little pullback in the price of gold, as it is down overnight about $2.50. This drop could give the HUI, gold mining stocks, a bit of a breather after their stunning performance over the past couple of weeks.

The other gold news that we get every Friday evening is the commitment of trader's report that has shown bullish tendencies the last month. The commercials have decreased their net short position for the fourth straight week and have dropped another 20k contracts this past week. Remember, this is without much drop in the price of gold. Together with the news from the French this weekend, gold and silver will become better buys this week. We are watching.

The stock market is looking to Friday to see if the Employment report will reveal anything about the current state of the economy. With the report near we are thinking the top in the market should be either behind us or in the next few trading days until Friday.

With several days off in the market, we are going to be patient with any new positions and give the market a chance to trade a little before we make too many predictions.

Hope your holiday weekend was good.

Dow Industrials: 10542.55 +4.95
BGEIX: 10.29

Thursday, May 26, 2005

Another Up Day

The market went up again today and is giving you opportunities to sell into this strength. We here at the Wednesday Update think that the time to sell will be now until next Friday, Unemployment Friday. The volume today continued in its lackluster ways and we wonder if there really is trading going on. Since the market is up on low volume, all of the trading is due to be tested to the downside. In the mean time there is a holiday weekend coming up and the market is in that lift type of mood.

We mentioned in the email that this weekend holds some importance for the European Community and that has caused the Euro to get a little less attention in favor of the dollar. And, that should have put some pressure on the gold but didn't really today. There was some weakness in the metals sector but not much. We are looking to next week to see what will happen in the currency/precious metals markets.

There was some talk today about a silver ETF in case you noticed some volatility in the silver versus the gold. We have been kind of looking for a silver ETF along with the gold ETF and if that does come about it would give us another vehicle to trade the precious metals.

Have a great weekend and we will get back to you next week.

Dow Industrials: 10,537.60 +79.80 (above 10,500 again)
BGEIX: 9.94

Tuesday, May 24, 2005

Dow Holds 10,500

Could be the last time over 10,500 for a long time.

The NASDAQ COMP now has eight straight up days in a row with almost a 100 point move in that time, about 5%. To me, it seems like a lot more than that. The market is plain and simple over bought at this point. You can't inhale forever and neither can the market go in one direction forever. The rally has been keeping many bullish but now is the time to unload some unwanted stocks that have not participated in the rally.

The market has given most of you a very nice gift here in the form of higher prices so those of you who STILL have not sold can have one more chance. This price high is lower than the price high of early March and that in itself is a bad sign. We are looking at the end of the month and wondering if the usual strength can show up again due to the previous week's strength. We think not. But, we recommend selling long positions by next Friday the first Friday of the month which is...you guessed it, Unemployment Report Friday.

We don't think this market can hold up that long but it is possible with the end of the month and the Unemployment Report due out. Either way, you can feel good about getting out at these prices and then you will be ready for a 25% rout in the major market indexes, we think by October with a lot of it coming in this first drop out of the high we are at now.

Our purchase of BGEIX on Monday has given us a good move in one day from 9.71 to 10.00. Today gold was virtually flat but the HUI was up over 4 points to 181.35, up ten percent in six days. In that same time gold has barely budged and we are fairly confident in our call. We recommend buying these stocks on ANY dips. The big move we have seen in this short a period is bound to be corrected somewhat, giving you ample opportunity to get into some of these stocks.

CNN Money published an article called "The Kevlar Housing Bubble". How appropriate for us contrarians! Today saw record existing home sales in April and Wednesday we get new home sales. It looks like Kevlar is the word to describe the housing "bubble". Wednesday also brings April durable goods which have been down for a couple of months, so expectations are for a 1.0% improvement.

Look for the Wednesday Update email tomorrow.

Dow Industrials: 10503.68 -19.88
BGEIX: 10.00

Monday, May 23, 2005

Dow Back Up to 10,500

Monday again brought a lift to the market, or as the CNN Money site said, another happy ending. Well, not to us. The market has managed two big weeks of price gains and on very little volume. Apparently the rest of the bulls want to buy stocks. We are waiting patiently for this market to find a top. It has moved up without much conviction and we don't believe that it can continue for long, but we have said that for a while now. But, here we are above 10,500 in the Dow. The March highs are still in place so we are continuing our bearish stance.

Since the lows of mid-April, prices have surged quite a bit and our Margin portfolio has suffered due to our not having buy stops to protect our shorts. We did put our shorts on for a good intermediate trade but we did not want to have to crawl up out of the cellar to find some gains. More tomorrow...

We recommended buying gold stocks in the form of the mutual fund BGEIX. The gold index, HUI, was up strongly today while gold was very subdued and hardly moved at all. This is exactly the type of action we were hoping for and are glad to be in a little mining fund for now. If prices drop a bit from here we may want to get a little more. The price we got today was 9.71.

Dow Industrials: 10,523.56 +51.65
BGEIX 9.71

Sunday, May 22, 2005

A New Week

Last week was particularly hard on our portfolios with the markets up about 3% across the board. We don't believe the bulls have another week in them like last week but it is the last week of the month and next Monday is Memorial Day so there is a natural lift possible.

There are a few news items for the week, existing housing sales, new home sales, durable goods, a revised GDP for first quarter, and Michigan consumer sentiment. We will see how these can move the market.

Last Friday's options expiration delivered unexpectedly low volume, one of the lowest volume days of the year on the NYSE. Last week was definitely up but it was on fairly low volume. The 5 day upside volume, the indicator we like for pinpointing short term tops made a high over 1 billion shares. That's a number not often seen, especially on generally low market volume. We think the volume speaks volumes about the rally.

As far as gold goes, Friday was a good day for the mining stocks as the HUI declined much less than the metal. And, Friday's commitment of traders report was solidly bullish the metals with another subsantial drop in the net short position of commercials. Three weeks ago, the commercials were net short a phenomenal 169K contracts and this week they had reduced that position to less than 80K. This is on about 275K contracts outstanding.

I don't know how much longer we can wait for an opportunity in gold so we are going to be buying $5,000 of the BGEIX fund in the Cash account on Monday. We will keep some powder dry in case we get better prices.

Dow Industrials: 10471.91 -21.28

Thursday, May 19, 2005

LEI Go Unnoticed

Today we saw the market move sideways for most of the day with a pop at the end of the day. There is really not much to report this evening except that the LEI, the Leading Economic Indicators, showed another month of decline and largely went unnoticed. The other news out on Thursday as every Thursday was the weekly claims for unemployment benefits. They were down but the four week average was up a little. Again, not much to report this evening. Friday is options expiration and this could be the end of the move. Today's volume was light again.

The gold complex showed weakness again today with the mining stocks dropping again. (There was some currency talk out of South Korea that suggested a loosening of the dollar peg.) We are waiting for a confirmation a good low is in place. Right now we are waiting to see if the lows in the HUI set this past week will hold. If so, we can begin to feel more confident about buying the mining stocks. Tomorrow we get another dose of traders' commitments and with gold dropping a little this week we should see more contraction in the commercial short position.

Have a great weekend.

Dow Industrials: 10493.19 +28.74 Dow is near 10,500--unbelievable!!!

Tuesday, May 17, 2005

The Snowman Speaks

If you look at the chart of the Dow for today, you see a distinct flat line of about 25 points range in trading until mid-afternoon when you see a vertical vault that lifted the Dow up about a 100 points. The primary reason sited for this rally was the good Secretary of Treasury, aka the Snowman in these parts. The Secretary did some sabre rattling at China to make progress on allowing a more flexible yaun. Well, one never knows if things like that can really move the market but it definitely seemed to coincide with the launch.

We are not sure that the US can make such demands on the Chinese. They hold and continue to buy many of our bonds supporting our desire for financing public debt at low rates. At the same time they would allow their currency to float, they would take a big haircut in the value of their bond holdings. (That's your homework assignment, figuring out why.)

Today's PPI increase was met with a yawn, not a yuan. The April number was 0.6% with core up only 0.3%, only. The Fed funds rate at 3% doesn't seem quite high enough compared to these numbers. Tomorrow we get the CPI, let's see what the market thinks of that.

Tonight we heard from two important tech companies, HPQ, Hewlett Packard (Compaq), and AMAT, one of our shorts. HPQ said their earnings were great and the new CEO, Hurd, said that the future was very bright indeed. So, in one short quarter this guy has turned the company around since Carley Fiorina left. The guy is truly amazing.

AMAT, on the other hand, said that earning for the quarter were down 18% and that revenue for next quarter might be down 10%. So, here we have the tale of two stocks. HPQ was up about 4% after the news and AMAT was down about 2%. We'll see how the market likes them in the morning.

As for gold, today was a good day for the mining companies as the HUI rose with very little net movement in the metal. This is the type of day we have been waiting for in order to trade into these stocks. The light is definitely turning from red to green--but we will wait a little while longer. You can do what you want.

Dow Industrials: 10,331.88 +79.59

Monday, May 16, 2005

Stock Market Up Again

Today the market decided to move up over a hundred points in the Dow but the volume was unconvincing at under 1.5 billion shares on the NYSE. On a rare day, the NASDAQ volume was slightly less than the NYSE volume, not by much but it was less. And, today the Dow managed to go back above 10,200 in what has become a very boring market over the past month with the Dow trading in a narrow 400 point range. We have seen these big days like today of over a hundred points with no follow through in either direction. So, for those of you trading every day, I hope you've been on the right side of your trades. For those of us waiting to see something move in one direction for more than a couple days, we have been waiting for a long time.

Unfortunately, this is not an easy market to make any money in and we suffer due to our leveraged short positions in the tech companies. We continue to believe that we are near the end of this boring period and we will finally see the market move down into the fall but we still are waiting.

Gold stocks continued to get blasted today with the HUI down another percent. PAAS closed well under 13 today at 12.35, near the low tick of the day. Last week this stock was over 14 so we have seen over a 10% drop in the price in a week. We are very tempted to buy this stock tomorrow morning. There is a fairly good opportunity here but we are going to wait another day to see what tomorrow brings. There should at least be an attempt to get back to the declining 50 day SMA which is about three points away at over 15. It's your call at this point.

Dow Industrials: 10,252.29 +112.17

Sunday, May 15, 2005


Friday morning the Dow tried to put on a happy face and rally a bit and then dropped into the negative. The rest of the morning saw the Dow rally but by about midday, the market just nose dived, with the Dow down around 100 points late in the session. It managed a bit of a rally in the final hour and cut it's losses to about 50 points.

The NASDAQ, on the other hand, decided to follow DELL's lead and rally, although as the Dow was dropping so was the NASDAQ. It looked as though the entire market was about to fall out of bed when a late day rally pushed prices back up but left the Dow negative.

For whatever reason, the market has abandoned most stocks except the tech related stocks, particularly the ones we are short. Oh well, we will have our day very soon. We do have a little powder dry (too bad we don't have more with this incessant rally since the April 15th low) and would be ready to deploy it with any more rally.

We have been interested in the gold complex but Friday was another desperate day in precious metals land with the stock dropping more than the metals. The commitment of traders showed another healthy drop in the net short position of the commercials. That report is based on Tuesday's close and doesn't reflect the drop in gold prices the rest of the week. Anyway, we are probably getting very close to a buying opportunity here with the HUI closing at 168.05. The BGEIX fund closed at 9.48 and PAAS closed at 12.60. All of these prices are very tempting at this point. If you take a second to look at the True Contrarian link, you will find a very bullish article on the mining shares.

Dow Industrials: 10,140.12 -49.36

Thursday, May 12, 2005

Gold Stocks Lose Luster

The markets were a little more full of zest today than the coma I have found them in lately. That's not to say it was a good day for the bulls, unless you call a little bond rally good for bond bulls. Otherwise, oil, gold and the stock market were down today. The NASDAQ stocks seem to have performed better than the Dow and SP500 stocks over the past few days.

Tonight DELL reported earnings that were in line with expectations with revenues below DELL's and analyst's estimates but still the stock was up a dollar in after hours trading. Tomorrow we will see if DELL can indeed hold the market up. Don't forget it's Friday the 13th.

We have been patiently waiting for the HUI index to go down less than gold. More specifically, we are thinking that gold will go down and the HUI will hold or go up. That is the signal for us to start to think about buying gold mining stocks. Well, today I checked the HUI during the day and found it down $8 near the end of the day, finishing down 7.12 at 172.83. So, I checked gold because with the big drop in the HUI, gold had to be down big. Well, it was down but only $6, again less than the HUI. Gold did break some support And, PAAS, was trading under 13 today before closing just above it at 13.02. We still need to be patient here with the HUI breaking below 175. The dollar continued its strength today closing at 85.49, above the April highs, and looking to move up to resistance in the 87 to 92 range. This should put added pressure on gold.

Like we said in the Wednesday Update, we need to reassess our position with this break of 175. It may be headed down to 163, at which time we would be inclined to take a harder look at it. But, remember our thought is that the HUI must not drop as much as gold, otherwise we are looking for more downside in both the metal and stocks. We'll be looking closely to see how the trader's commitments look on Friday evening. As we said the commercial's net short position dropped 30K contracts last week but the number was still large.

The stock market seems just about ready to be over with this latest rally phase. Today the Dow managed to close under 10,200 in a quick sign that the trading range of 10,200 to 10,400 may have ended today. (This in spite of oil dropping almost $2 to close at $48.54.) We should see confirmation of that tomorrow in order for it to be true. With DELL out tonight, the futures are indicating a positive opening but there is a lot of time between now and Friday's close. In any event, the market seems ready to drop right here. We will monitor the signs tomorrow and give you an update for Monday morning.

Have a great weekend and happy trading.

Dow Industrials: 10189.48 -110.77

Tuesday, May 10, 2005

Hedge Funds Drag the Market Down

Today's market decided to pay attention to various rumors about Hedge Fund trading. The rumor was that a large hedge fund needed to liquidate some major holdings even though these things really can't be confirmed. The fact that the market traded down on this news related item seems to present two different thoughts. The first is that the market wants to go down, it just needs a reason. The second is that the market is searching for a point of support.

The best I can say is that the market is not very strong and the players are not either. People made comments about how the market dropped today, like 75 points or so was devastating. This market has been nothing like a bull market but those who own stocks want this rally to lead to another bull run like we had in late 1999 and early 2000. Do not be taken in by this market, it will not turn out to be your best friend.

We promised a preview of CSCO last night. CSCO's earnings estimates were for about 22 cents. Actual earnings before items were 23 cents and after items were 21 cents. So, you could say that they beat estimates by a penny a share--please, not again.

Even the mining stocks took it on the chin today. I have felt that mining stocks would probably go the way of the general stock market on the next down leg, at least for a while. Today's move down in the mining stocks ran counter to the metals going up. This is not a good thing for those of us looking for the opposite: mining stocks going up when the metals go down. We continue to wait for a good opportunity.

Look for the Wednesday Update in your email.

Dow Industrials: 10281.11 -103.23

Monday, May 09, 2005

Monday's Should Be More Exciting

Not much to report this evening as nothing much happened. All I can say is that Monday's should be up normally as its the first of the week but this wasn't much of an up. I think it has to do with the basic nature of the rally we have seen.

Bull markets don't ever give you time to think about whether you should buy or not. They just go up and you have to either buy now or face higher prices later. This market is not doing anything of the sort. It is letting anyone get in whenever they feel like it.

Maybe something will happen tomorrow. Actually the market seems to be waiting for the earnings news out of CSCO and DELL this week. CSCO is tomorrow night and we will see what that brings. We will report the early results tomorrow evening. See you then.

Dow Industrials: 10384.34 +38.94

Sunday, May 08, 2005

Employment Numbers Bullish???

Bullish at the opening, anyway. Friday's Employment data blasted the futures and the Dow up at the open, something we said would happen in any event; however, the bonds were disappointed in the strength of the numbers. The employment picture certainly looked brighter after the 100k better than expected number came out for last month and the two previous months had large upward revisions as well.

As expected the markets printed the high prices of the day near the opening with the SP 500 actually down on the day. The Dow and the SP 500 ended pretty much on the lows of the day with the NASDAQ 100 faring a little better than that. The bonds never recovered. The dollar was strong, besting its late April highs with a bullish chart pattern.

We were hoping to get on board the gold mining train this week so we continue to watch that market carefully. The possibility is strong that we are seeing lows in the prices of these stocks this month that may hold for quite some time. Finally the trader's commitments show a marked drop in the net number of short contracts, a remarkable 30k net drop. Gold seems to refuse to drop down much but we still feel the metal could go below $400 in the near term.

The Fed increased rates again last week with the possibility that it may be the last. Now, that is not what they said but what the Wednesday Update THINKS may happen. This is one good possibility for gold. The potential for higher interest rates have propped up the dollar for the Fed and Friday's Employment statistics also brought some strength to the dollar. As the economy gets stronger, interest rates should go up...at least that's how the market seems to interpret the numbers. If interest rates don't actually go up at the next Fed meeting in June, the dollar could suffer, enhancing gold's chances. The Fed knows this and is concerned about this possible outcome.

We will monitor the situation in the gold to look for opportunities and if you really can't wait, go ahead and watch some of the gold stocks to find good spots to get in. Again we recommend the BGEIX fund which closed at 10.37 on Friday. To take advantage of the potential drop in the stock market along with the possibility of higher gold mining shares, you could look at BEARX fund as well, closed at 5.44 on Friday. Both of these funds are good possibilities at the moment.

Dow Industrials: 10345.40 +5.02

Thursday, May 05, 2005

Another GM Day

Today the market tried its best to move up until Standard and Poors downgraded GM's debt to Junk status and shortly thereafter said the same thing about F. The market immediately decided to sell off on this news and dropped nearly 100 points in a short period of time. Of course, they took care of all the worries about that and then bought the market the rest of the day only to end down about 44 in the Dow. GM fell on the news and traded around 31 most of the rest of the day, ostensibly due to Kerkorian buying shares at that price, yeah right.

One other news item of note was a bomb going off near the British Consulate in Manhattan just before the market opened this morning. And, by coincidence, the Brit's were having an election for Blair today, which he and his party won, but not with a big margin.

Tomorrow morning we get the monthly status on Employment which usually makes for interesting trading. I have been trying to think of a way the market could open down tomorrow and I can't come up with one. If the jobs are less than the expected 175K, the will buy them due to the Fed being able to slow down their incessant increases in the funds rate. On the other hand, if they are more than that, the economy is on the mend. So, the market should rally at the opening tomorrow.

We of course are interested in putting on more short positions but really can't justify a clear cut trade this evening. Maybe we can recommend a better trade on Sunday evening. Until then...

Dow Industrials 10340.38 -44.26

Tuesday, May 03, 2005

The Fed's Double Pump

Today's Fed announcement of a 25 bps increase in the funds rate was met like a nonevent. The Fed has accomplished what they intended, increasing rates without really bothering the markets, effectively losing the element of surprise. They did pull a little fast one at the end of the day by submitting an addendum to their earlier statement.

A short time before the end of trading today, they said they had inadvertently dropped a key sentence from their earlier announcement: "Longer-term inflation expectations remain well contained." This statement had appeared in their March statement as well. If you could go to the Big Charts link at the right and chart the INDU, for the Dow, on a one minute two day chart, you will see the quick burst of activity right at the end of the day. That would be about a 50 point ramp job into the close to bring the Dow back into positive territory for the day, up 5 points. There was some movement after the earlier announcement but not really very much.

I continue to be fascinated with the gold market especially on a day like today when the Fed is raising interest rates to prop up the dollar. This runs against the gold but gold managed an okay day while the mining stocks were up. Looking at the HUI index you can see a positive move all day today. This is the kind of action we are looking for in order to add some of these mining shares to our portfolio. We may be getting pretty close to doing that tonight. Stay tuned.

Monday, May 02, 2005

All Eyes on the Fed

Tuesday the Fed makes its announcement of the funds rate along with a statement that will be carefully scrutinized by the market participants. To me, the market seems to think it's a foregone conclusion that they will raise rates 25 bps, as previously mentioned in the Wednesday Update; but, their statement could be a catalyst for the market, one way or the other. My take tonight is that this week the market wants to move up and it will after the announcement. Between tomorrow's announcement and June's announcement there will be significant time for the market to draw another conclusion, a much more bearish one.

The Fed needs to continue to prop up the dollar and not scare the stock market (at least that's what it appears they want to do, who knows for sure what they think they need to do). By raising rates and hoping the whole yield curve moves up, the dollar can continue stronger. The fore warning they have given to raise rates has given the participants ample time to unwind any problem carry trades but at the same time the yield curve is flattening, to the dismay of the Fed.

The other topic we will continue to mention here is the gold market. Today we finally saw some tightening in the spread of the gold and the HUI. (For more information on this topic, please click on the True Contrarian link.) For the first time in a while gold dropped more than the HUI and the HUI actually moved up into the close. This marks the first whiff of a buying opportunity in the mining stocks like PAAS. We still are going to wait but as we always say, you are the captain of your financial ship.

AIG was up today on news that the company seems to want to become more transparent and will shed about $3 billion in net worth. The market needed to be assured that something was being done to shore up confidence in the stock. Now what???

Sunday, May 01, 2005

... and That Makes 10

In the last Wednesday Update, email version, we commented on the Dr. Jekyll and Mr. Hyde type market we were in, one day up and the next day down. In that Update we said that the market had done that, in terms of the Dow, for eight straight days. Friday makes 10 straight days of back and forth action.

Tomorrow morning we should probably watch for a down day but Monday being the first trading day of month, that doesn't seem likely. We will see. Actually we are hoping for a little bit of a rally this week into Friday's Employment news so we can get some more short positions established. The market is prepared for the Fed's impending increase in the funds rate but they are all waiting for some news on the future course of rates. Our guess is that the market will cheer any news out of the Fed at this week's increase but time will tell. So, it's the beginning of the month and the bulls are happy. We don't know why exactly due to the poor performance in March, but who knows what makes bulls tick, not this contrarian.

We received our first comment to the blog last week, thanks. The reader asked about the possible signs of when to buy PAAS, our favorite little silver mining stock. We have been cautious on the metals due to the incredible drop in their prices of late, so much so that the 200 day SMA in PAAS has turned negative, a bearish sign indeed. See the comments for more info but if the Fed does decide not to raise rates, possibly have to wait for June for that, it would give us the first solid fundamental shift in the precious metals. But, for now, I don't think we need to get too aggressive here. I checked the commitment of traders for last week, very bearish as they increased their net short position by over 25,000 contracts.