Thursday, June 30, 2005

Fed Raises Rate, Traders Lower Market

While we were not entirely surprised by the Fed's lack of originality, we did think the market might put in a little better performance since everybody was expecting rates to move a quarter point higher. That and the fact that today was the last day of the quarter, normally a strong time for the market. All of this is in addition to the normal strength of long holiday weekends.

As I'm sure you know by now, the Fed raised short term rates another quarter point today, the ninth such move in the last nine FOMC meetings. Does this mean that we are now in the ninth inning, or are we going into extra innings? Not that the bond market paid much attention to the Fed's potent (yes, I know, sarcasm again) 25 bps as it managed to rally strongly sending rates Lower on the day. Pretty soon we will have a flat yield curve with rates all across the Treasury curve being 3.5%, exactly the conundrum that Greenspan sees.

We think that the inflation numbers are not showing the true picture of the economy as yesterday's final first quarter GDP number was released showing 3.8% growth. Had inflation been higher, the GDP would have been lower, and what I am trying to say is that inflation was higher than reported. The GDP got a break from this and had a good showing.

The Dow dropped nearly 100 points today after the announcement and now sits under 10,300 again, its lowest close since May 16th. Right after the announcement the market did some minor volatility but then went down the rest of the day. But, of course, the over night markets are again showing strength. They may never learn but we can thank them because we get to sell to them.

The June numbers are in and they are like this:

Dow Down 192 (-1.8%)
SP500 Flat (0%)
NASDAQ Comp Down 11 (-0.5%)
NASDAQ 100 Down 49 (-3.1%)
HUI Up 15 (+8.5%)

Where did the Wednesday Update have you invested? Short the NASDAQ 100 and long the HUI, we all had a good month. We look forward to July.

Dow Industrials: 10,274.97 -99.51
BGEIX: 11.23

PS We did notice silver traded under $7 today.

Tuesday, June 28, 2005

Consumer Confidence Rises, Oil Falls

The market had one of those bounce days that we so often see after a solid selloff. The Dow had been down six days in a row and today decided it might try to go up. With little resistance, the Dow managed better than a hundred points today on good consumer confidence numbers and a big drop in oil prices. I still think that $58 oil is pretty expensive but the market rallied on that drop anyway. Bonds weren't too happy and dropped a little increasing rates by a little bit today.

I received a comment today regarding GM being dropped from the Dow Industrials. The comment was that with GM going down, an investment in an inverse Dow fund would not benefit from a further drop in GM. My thought is that GM has already dropped quite a bit and will be replaced by a stock that HAS gone up allowing a larger drop in the Dow. Any comments?

Gold and silver were both down today and silver itself is looking pretty close to a buy to me. Personally, I have been very patient with a silver purchase and the time is definitely close. The True Contrarian advises buying silver under $7 an ounce and today it closed at 7.09 down about 15 cents. PAAS was down during the day but recovered to close modestly up on the day, a very strong showing. (I own PAAS in another account.)

Dow Industrials: 10405.63 +114.85 (longing for 10,500)
BGEIX: 10.95

Monday, June 27, 2005

Say Goodbye to 10,500

The Wednesday Update blog returns and sees the Dow comfortably under 10,500, about at 10,300. After over a month at that 10,500 level, the Dow has finally dropped and is now having difficulty staying up. Of course, there are plenty of bulls out there to try to hold it up but they can only do that for a while.

There are a couple of comments out on the last blog providing some fresh air in an otherwise dull, maybe I should say nonexistent, blog the last week. Dullness was not the theme of the market the last several days, however, as the Dow has now fallen 332 points in six straight sessions from its high of 10,623. After a false breakout to the upside, the true move is emerging and it seems fairly strong to the downside.

You may be asking what has caused the drop and that may be important but it probably can't be determined by reading the news. Or, it may be. I was disturbed by last week's Supreme Court ruling that expanded eminent domain. And, that could have had a significant impact on the market--or not. I just saw that it coincided with the market dropping.

There are plenty of reasons for this market to drop, such as the price of oil and gas, oil carrying a six handle for the first time ever(meaning it's over $60). I was amazed by a report showing the "inflation" adjusted price of oil and how the price of oil is less than it has been in the past on that basis. Let's try to put a bullish spin on the high price of oil, shall we. Right.

The precious metals have shown some weakness in the past week along with the market and may show some more. This drop should provide another good opportunity for you to move into the complex. The HUI may drop another five or ten points from tonight's 196 with a powerful move up to follow. We will provide tighter entry points over the next few weeks.

All eyes are on the Fed as they will be announcing something this week on interest rates. I believe the announcement comes on Thursday afternoon so get ready. We have been thinking the Fed is starting to get into trouble with raising rates and have even predicted that they will not raise rates this week but it looks like they have to raise them. We will see, more on this in the next few days.

Dow Industrials: 10,290.78 -7.06
BGEIX: 11.06

PS My son's wedding was perfect.

Sunday, June 19, 2005

New Week, New Decline Coming

Just wanted to remind all of you that the market has now finished with its option expiration ritual and we did have some typical quadruple witching volume. The market is now set for a fall and hopefully you have prepared yourselves for this drop.

Oil closed at a record high on Friday and may cause some strain in the market this week. The dollar has been struggling higher during 2005 but we feel some gravity beginning to tug at it. The Fed meeting is looming large next week and traders will be nervous in front of that, too.

Please read our link to the True Contrarian. His sort of regular Sunday Update for June 19th is specific about gold and the NASDAQ. We are in complete alignment with him at the moment.

Good luck and remember...

The Wednesday Update Blog will return next week. See you back here then.

Dow Industrials: 10623.07 +44.42 (What do you know, a close away from 10,500! Enjoy it while it lasts.)
BGEIX: 11.27

Thursday, June 16, 2005

Gold Rocks

Gold decided to have a great day, going up $7 today. This led to a great day for gold stocks in general. We are very pleased so far with our choice of PAAS and BGEIX which were both up nicely today. PAAS was up 60 cents to 15.42 for a 4% advance and BGEIX was up 34 to 11.20 for a nice 3% move. So far BGEIX is up 1.49 from 9.71 for a 15% gain, not too bad for a trade we put on May 23rd, less than a month ago. And, it's a long position, most of you should like that.

The stock market continues to annoy me by trying to find everything bullish. Today oil closed over $56 a barrel and that is stock bullish because oil will fall and you want to be in stocks when it does. There was an article on CNN today with a title of "Oil set for a Crash?" A Morgan Stanley economist said that "I believe it [oil] could correct in the most speculative fashion--it could collapse." And, this after Goldman Sachs comment a few months that oil was poised for a move to $105.

Meanwhile, the Dow continues to keep that 10,500 handle and we are having a hard time staying awake for this. We were pretty sure that the intermediate top would come into sharp focus this month, but the focus is blurry at best. We still maintain that the highs of the year are in place and will NOT be broken in our four indexes, Dow, SP500, NASDAQ Comp, and NASDAQ 100.

As noted in our email version last night, this will probably be the last Blog until Monday evening, June 27th. If something truly awe inspiring happens in the stock market, I may have to post another blog.

In the mean time we are fairly happy with our positions especially our gold positions. We hope you were able to take advantage of that, too. We tried to bring you through the process to buy BGEIX over a few months. We picked a pretty good point to enter, we saw a clear bottom given our signals and we pulled the trigger. We may have been a little late but it wasn't very late. BGEIX hit a low of 9.34 on May 16th and we bought at 9.71 a week later.

Have a great weekend and a nice week off next week. Please come back after my Monday evening post on June 27th. I am hoping something happens before then, like tomorrow when we get quadruple witching. Maybe tomorrow we can get some better volume just because of that, something, anything, would be good.

Dow Industrials: 10,578.65 +12.28
BGEIX: 11.20

Tuesday, June 14, 2005

BBY is a Winner Today

Best Buy, BBY, provided some entertainment for the street today by announcing blowout earnings and then rallying 15% to an all time high. The comment in yesterday's posting tells it all. But, I wish to remind you all that in the Wednesday Update email version, we did point out that BBY was one of the winners. I know, I didn't really recommend it.

The market was fairly quiet, other than BBY, and Dow leadership came from GM, that's comforting to all of you bulls out there. The Dow continues trading near 10,500 in very dull trading. I usually say that dull markets don't stay dull very long but here we are with a stretch of 19 days trading near 10,500.

JPM, one of our shorts, announced that it would settle some of the Enron claims and pay a $2.2 billion fine. So, of course, that would mean that all the bad news is behind JPM--I am a little sarcastic this evening, sorry. We are only slightly down on this short (stock is up from where we shorted it) and would like to see some progress along with the market in the southerly direction.

Today showed last month's PPI, Producer Price Index, to be down 0.6% just the same amount it was up last month. This number "proves" that there is no inflation and the Fed can start thinking about slowing those nasty interest rate increases. For some reason the bond market was not buying it today as it closed down slightly, still showing fatigue after its big reversal day on Unemployment Friday. And, tomorrow brings us the CPI, Consumer Price Index, with expectations (before today's PPI at least) of a slight increase in the Core of 0.2% but no change in the all inclusive, we never pay attention to this number unless it is "good", CPI. Last month showed a worrisome 0.4% increase so one might think the number tomorrow might follow the PPI's lead and be down the same amount. I am so bad.

Gold and company moved down today and is trying to make me feel like selling our position. PAAS decided not to make a run at last week's high of 15.40 and instead dropped a bit today. We need to see a solid up day with a punch through that 15.40 to feel confident in the next up move. Looking at the HUI we see a similar pattern. The HUI is well above its low of 165.71 on May 16th and closing today at 191.39 down 3.37. The bullish pattern is very much in place. We would expect to see a powerful rally from the lows that develop over the next day or two.

Dow Industrials: 10,547.57 +25.01
BGEIX: 10.70

Monday, June 13, 2005

Dow Still Attracted to 10,500

For eighteen straight trading days, the Dow Industrials have traded at 10,500. Looking at the chart, it appears that we have a flat line Dow for almost a month. That could be the most exciting thing about today's trading.

There was a big rally in the morning and then stocks drifted down the rest of the day. I call this a distribution technique, push prices up fast ensuring a good bit of chasing to get in and then some buyers under the market to sell to over the course of the day. The market is just taking more and more captives as it meanders through treacherous water. Yes, many stocks have moved up a bit into this past few weeks highs but many have not.

We are still perplexed by the overwhelming bullishness in the market place. We believe that bullishness is misguided and will be reversed over the course of the next four months. You might say, "What can push this market down?" to which I reply what ever does. Today oil was up about $2 to over $55 and the bulls are now impervious to higher oil prices, they just don't matter to anyone. Anyone, that is, except companies like Northwest Airlines, NWAC, who need to pay for fuel and can't raise prices to cover their expenses. NWAC is thought to need a possible Chapter 11 to seek protection from creditors.

The precious metals were not very strong today with gold up a little and silver down a little. The mining stocks faired ok with PAAS a little weak. PAAS needs to run up strongly here in the next few days to we can feel more confident in our bullish position in these stocks. We continue to recommend these stocks and the precious metals themselves.

Dow Industrials: 10522.56 +9.93 (Is anyone else getting bored with this 10,500?)
BGEIX: 10.80

Sunday, June 12, 2005

Start of a New Week

Friday was good to our precious metals positions as well as some of our shorts with the NASDAQ being down strongly; but, here we are facing a new week and new challenges. The stock market is uneasy and overbought. The top from two weeks ago is still well in place and we had a good nonconfirmation when the SP500 pushed to a new relative high but all of our other indexes stayed below the previous week's high.

Friday's commitment of trader's report (after the close) was not too bullish for metals but I think we are now into watching the mining stocks for further clues. The pattern is very much in place for further upside and we continue to recommend buying on weakness. Tonight gold is down and so is silver which could set up a nice pull back in the early trading on Monday. We are watching PAAS, well, maybe we should say trading PAAS with the full intent of seeing it cross to a new relative high against last week's 15.40. PAAS made a perfect low near 14 last week and now should move above 15.40.

The strength of the move over 15.40 should give us a good indication of the power in further upside. If it can't do much over 15.40, then we know to get out of our position. We think a move well above that number is possible--there are never guarantees however. We just want to follow what the market is telling us. Our main index, the HUI, hit a high of 195.73 last week and closed Friday at 192.07 up 7.33. We saw a nice pullback last week from that 195.73 high to 181.67 and now 195.73 is the number that should be exceeded, and fairly soon, for us to think the gold bull market has started.

In economic news this week, we will get to see some hint on inflation as the PPI, Producer Price Index, will be released on Tuesday and the CPI, Consumer Price Index, will be released on Wednesday. These are potentially gold and silver movers and we need to be careful as these reports come out. There are bond market and stock market considerations as well because this will give good clues as to what the Fed may be forced to do later this month at their rate setting meeting. We already think that the bond market topped the day of the Employment report, June 3rd when it decided to do a key reversal, with a big outside down day.

The market is also looking at triple, or quadruple, witching with options and futures expiring on Friday. That is always an interesting day and we all know where most of the players are, bullish this month. There could be some excitement this week, this being June and all. The next two weeks could be decidedly bearish given the market is overbought and the players are all bullish.

Happy Trading, be careful.

Dow Industrials: 10512.63 +9.61 (trying to hit 10,500)
BGEIX: 10.67 ( a new high for the move, we are in at 9.71)

Thursday, June 09, 2005

Dow 10,500?

After the last three weeks of trading, I have come to conclude that the market is trying to close right at 10,500. Today it almost hit it right on the nose at 10,503. All participants were waiting for Greenspan to speak before any real trading could begin and of course his words were palatable to the market.

Tonight INTC had their mid-quarter update and raised revenue guidance a little bit. INTC has had a big run for the past month or so and going into the close it was having another good day. After the announcement there was a bit of a pull back in the price. We will see what tomorrow brings.

It's Friday and soft trading, both in terms of volume and price should occur. Not much to report tonight as nothing seems to be going on, again. Our assessment is that the market continues to be overbought and we remain extremely bearish.

We mentioned trying to get into PAAS again today and we did. PAAS dropped to 13.99 during the morning trading and we managed to pay a little bit more than that for it but are happy with our trade. Silver dropped 18 cents today, about 2.5%, and gave us a great opportunity to get back into PAAS. Our target price was in the low 14's and today it traded at 13.99, so far we are doing well since PAAS closed at 14.35.

Have a great weekend, talk to you next week.

Dow Industrials: 10503.02 +26.16
BGEIX: 10.32

Tuesday, June 07, 2005

Turn Around Tuesday

The market got off to a big start this morning and showed about a 1% gain in the first hour of trading. After that the market hit a brick wall--could it be last week's highs were holding? Well, of our three indexes only the SP500 made a new high today compared to last week. The other two, NASDAQ COMP and DOW Industrials did not make new highs. You guessed it, that's a big nonconfirmation. Looking at the rest of the day, the markets turned down and basically closed on the lows of the day, although the DOW managed a 16 point gain.

This is the type of market action that we are expecting and it does not surprise us. As the Dow traded over 10,500, AGAIN, we have to admit a little nerves but when it was over the market managed a big turn around to the down side. This type of day gives us more confident in calling last week's high the top. Of course, we won't know that until we see some further deterioration in prices and we are watching for that.

Tonight TXN, Texas Instruments, announced some good news, at least the market liked it and we are seeing some strength in the overnight markets; but, as we've seen many times in the past, overnight markets don't always mean and up morning.

The precious metals were mixed today with the mining stocks taking another breather pulling the HUI down to 184.75 well under 190. The next rally here might be pretty strong so we want to take advantage of that move. We put an order in to buy PAAS this morning but tried to get it for too cheap so we didn't get it. We may try again tomorrow.

We want to remind you that this market is very ready to go down and it will be very tricky. We have tried to give you a good warning about what we think will be the top, last week. Be careful with your assets.

Dow Industrials: 10,483.07 +16.04 (Dow got over 10,500 today but couldn't hold it)
BGEIX: 10.35

Monday, June 06, 2005

Another Dull Monday

The Dow barely registered anything during today's low volume session. No particular movement anywhere and looking for a pulse in most places. So, not much to report this evening.

The gold and silver markets were up today but the mining stocks took a bit of a breather dropping a little less than a percent. This morning's pop was quickly sold and we ended basically on the lows of the day. This is not particularly bullish near term and we continue to wait for a good entry, or should we say, re-entry point for PAAS.

Try to stay awake long enough to pay attention to the market's next move, which we think will be down into the end of June and then into October.

Dow Industrials: 10,467.03 +6.06 (still under 10,500)
BGEIX: 10.51

Sunday, June 05, 2005

Monday Again

Friday's volume was light again and without volume there usually can't be sustained upside, not to mention the down day we saw on Friday. We are more and more convinced that this market is topping and that the highs we saw late last week will probably hold for some time. We remain very bearish considering the highs set late last week.

As far as precious metals and mining stocks go, we are much more constructive and encourage you to read the new post at the True Contrarian link to the left. He is making the case to buy the metal under $420 with a possible downside of $406, so keep that in mind. And, he says that mining stocks should be picked up if the HUI dips below 190, and maybe that will be here early this week since the HUI closed just over 190 on Friday. There are opportunities in the precious metals and mining stocks for those of you who want to be bullish on stocks. We continue to watch PAAS for another entry point, hoping for the low 14's.

June could see a swift downward correction of this rally of the past month and we are going to be happy to see it for our trading accounts. Tonight the futures are not particularly motivated in either direction, must be waiting until trading opens tomorrow like we are.

Last Friday morning we said something about the bond market being happy about the low jobs number and we should have paid more attention to that statement alone. We talk about morning pops in the stock market being good selling opportunities. Well, from the looks of the way the bonds ended on Friday that they follow the same pattern. Right after the news, they were up strongly and by the end of the day they were down, a nice reversal day and quite probably very bearish for bonds. Don't forget that as bonds go UP, rates go DOWN but when bonds go down, rates go up.

All in all Friday shaped up to be a nice turn around day but only time will tell if we are correct.

Dow Industrials: 10460.97 -92.52 (back under 10,500)
BGEIX: 10.57

Friday, June 03, 2005

Weak Job Growth

Quick note this morning: The jobs came in at 78K, far below the 180K estimates, and last month's 274K stayed the same. The bond market is having a good time this morning. The stock market was soft overnight and did bounce a little on the jobs report but is not going to produce the type of pop that we would like to have seen. That is not to say that today does not represent a good top, today is our pick for that as indicated in our writings over the past two or three weeks. If the market is finally putting things together, there could be a dramatic shift in market psychology, something we like to call a sea change.

The time to act is now if you haven't already. Cash is King and gold may be the best currency for you to have. Gold is trading near $424 this morning.

Have a great trading day and a peaceful weekend. We'll be back next week.

PS Don't forget to look at last night's post below.

Thursday, June 02, 2005

Cheers to Unemployment Friday

Friday we get the all important Jobs report which can lead to some volatility in the market. This time the Wednesday Update is looking for a defined market top to form. This usually resembles a nice upside pop in celebration of the number, whatever it may be. The market seems to be whistling to its own tune the last few weeks and probably will come up with a reason to jump up with any number that comes out of the jobs report. If it's too big, the economy is getting stronger, if it's too small, the Fed won't need to raise rates and of course if it's just right, Goldilocks will appear. There are many out there who think Goldilocks is already here.

This morning the weekly jobless claims number showed a bit more weakness than was expected, with claims up 25K compared to an expected increase of just 2K. The jobs number is expected to show about 180K growth compared to last month's 274K. That number will most likely be revised and the market tends to look at the revisions to see a trend. And, as we always say, it doesn't really matter what the number is, what matters is the early reaction to it.

Ideally, we will see a good up move in the morning confirming half of our conjecture. Then it will be up to the players to see if that will be the peak for the move and the summer. You can never be sure, but the moment looks like it has arrived to us. Oil has moved up (not today), gold reversed course this week, the market is well overbought and WE are SHORT. Ok, maybe that last one is a little selfish but it's true.

I have been long PAAS however and that has done very well but today PAAS popped a little at the open and gave me cause to sell my position. I am looking for an entry point again. I have traded it twice in the past two weeks, bought it once at 12.60 and took 13.10 for it and then bought it again at 12.60 and sold it today right after the opening bell at 15.25 for a nice 20% move. Can you get it to go back down to 12.60 so I can do it again? Please?

Seriously, I don't think PAAS will get back to 12.60 so now I need to decide when to get back in. It seems too soon to think that if the market pops tomorrow that this stock would drop enough to let me back in. But, such is the nature of bull runs, they tend not to let you back in. The way I will try to trade this is to buy early weakness and that may be tomorrow. Based on normal corrective retracements, the stock could drop back to around 14 but that could be wishful thinking.

At the same time, gold looks like it might have reversed its course this week. Today it gave us a strong up move, about six dollars even with a strong dollar and a weak Euro after yesterday's Dutch no vote. So, all of a sudden the precious metals are beginning to pick up some bids. Friday we get the commitment of traders report which should be revealing.

So, two ways to travel, short the market on an strong opening or buy the metals or mining stocks on a little weakness. You do have some extra cash lying around after selling all of your stocks into this rally over the past week or so, right???

I apologize for the length of this tonight but Friday is an important day.

Dow Industrials: 10553.49 +3.62 (enjoy that 10,500 while it lasts)
BGEIX: 10.43 (managed a one cent gain)