Wednesday, August 31, 2005

End of the Month Surge

The economic news of the day includes the GDP and the Chicago PMI, not to mention the continued disaster in the New Orleans area. This morning we got the latest revision on the second quarter GDP and it was down 0.1% at 3.3% from the last estimate of 3.4%. Meanwhile, in more current news, the Chicago Purchasing Managers Index fell significantly from 63.5 last month to 49.5 this month after estimates of 60.5 to 61.5. This is an index that indicates contraction when it’s under 50 and it’s under 50. The news is generally not too positive around the country but the stock market bulls seem to think in the back of their minds that the Fed will certainly have to stop raising rates.

The bond market has had a stunning rally the last two days with the ten year dropping back to 4% today. We discussed the possibility of a bond rally that would be contained by the highs set back on the June jobs report. The futures price back then was just over 119½. Since then we have seen prices drop to a low around 113¾. Today’s high of 118½ is pushing up to the limit of where we think it should go.

The great credit expansion can continue with rates dropping the last two days. We have discussed this many times this summer that we think that rates would come down a bit but that the credit expansion would subside. We didn’t know what would do it but now we can see a little more clearly. The wake of Katrina will be wide.

One item of concern is the price of natural gas. This is the last day of August, not a month you would normally think about natural gas but here we are bringing it up. The price of natural gas has spiked this week along with the other petroleum products. The price of natural gas dropped to a low around 6.50 back in May and tonight it is 11.50. Last winter’s spike high was around 7.50 and it spiked again in early April just over 8. Basically, you can expect about a double in the price of heating your home this winter over last winter. And, still bonds rally (lowering interest rates).

Today the stock market enjoyed the last trading day of the month and rallied the Dow almost 70 points, but not back to the 10,500 level. The volume was heavy at 1.8 billion shares on the NYSE. Some might think this is the start of the uptrend that the bulls are hoping for going into the fall. So, we offer up a slightly less bullish opinion, surprising don’t you think?

We remind you of the turn down in the Dow’s 50 day and 200 day SMA. The levels of those two averages are just overhead at 10,530 and 10,538 respectively. These averages serve as a bit of a ceiling on the prices. Not that the market can’t break those ceilings, just that there is some resistance overhead in terms of the SMA’s, not to mention the general overhead supply in that 10,500 to 10,600 range.

Mining stocks surged back to life today as the HUI jumped 7 points and that 200 level does look like some fairly good support. Keep it coming.

Dow Industrials: 10,481.60 + 68.78
BGEIX: 11.46

Tuesday, August 30, 2005

Katrina Still Lethal

The stock market had to deal with some more news from Katrina today but, like Monday, found some support when the August Consumer Confidence numbers came out better than expected at 105.6. This number seems a little out of place at the moment due to the price of gas, which has rallied 60 cents in the last two days, and the effects of the hurricane. These numbers reflect data prior to the weekend but still could have given some strength to the market. The Dow tried to maintain down 50 for about a half an hour before giving way to more selling.

At mid-morning a bottom was found that launched a 60 point run in the Dow in the middle of the day. Then the minutes to the Fed’s August meeting were released indicating the possibility of further tightening due to the threat of inflation. That news item pushed the Dow back to fresh lows for the session around 10,350. This level has provided some support to the Dow over the past several trading days and it did today, too, as the Dow climbed over 60 points again to close down only 50.

The news on Katrina continues to push gas prices up due to three troubled refineries in Louisiana. The burst in gas prices must be an over reaction but it is definitely something to have to deal with at the pump for the near term.

Tomorrow is the end of the month and normally would provide some strength to the market. Neither are we are convinced that September will be as strong as some have suggested. Of course, the same obvious bullish patterns normally develop during this time of the month and just ahead of a holiday. We aren’t going to get too excited just yet.

Erick has left us some good information out in the comments to yesterday’s post. He is talking about heavy insider sales of the homebuilders. Take a look and thanks Erick.

The precious metals didn’t have a very good day today with gold down over six dollars today. The HUI was not down nearly that much so it might be finding support here around 200. We may consider buying more mining stocks or BGEIX if things start looking oversold in this arena.

Dow Industrials: 10,412.82 -50.23
BGEIX: 11.19 (ouch)

Monday, August 29, 2005

Turn Around Monday

Well, the market did manage to shrug off Katrina after a mildly negative opening. The market found some support this morning and Monday became an up day just because.

Not much other news today except that the Dow did not manage to climb the required 70 points and the 200 day SMA has now managed to turn over. This is not a strong endorsement for a good down move but it does give added bearishness, at least on the surface. That 10,500 number is again pretty close and, with the momentum generated today, we could easily see it again tomorrow.

The two SMA's that we follow on the Dow are now both pointing down and the 50 day has pierced the 200 day to the downside. Normally, this is significantly bearish especially with the Dow itself below both of those lines but in this case, with the Dow still hanging around 10,500, we need to be patient and watch carefully for other signs of market weakness.

The volume today was fairly light and the summer volume doldrums seem to be the normal course for the market here in late August. Over the next week, the bulls are looking to grab some power to the upside and with today's reversal, even on low volume, they could get some follow through on today's mini-reversal. They do need to get some volume going next week in order to see any significant push to the upside. We are not so sure. Last year volume was light in August and September with better volume showing up in October when the Dow made its last solid low near 9750.

Dow Industrials: 10,463.05 +65.76
BGEIX: 11.36

Sunday, August 28, 2005

Katrina Rings Bell

Last Thursday we wondered if anyone could stay awake when the market traded so quietly as to not disturb anyone, bull or bear. Katrina has changed that tonight, what a woman! She has turned into a category 5 hurricane after being over the Gulf today and is threatening to hit New Orleans by the time you read this in the morning. Meanwhile, New Orleans has been mostly evacuated today with the warning of devastating wind and water. The reports I saw tonight indicated that last year's Charley, a category 4 storm, was much smaller than Katrina. Charley made its way through Florida and all the way up the east coast while Katrina is probably going to slam into New Orleans and lose a lot of power over land but only after she does her damage. The effects of Katrina may be felt for a long time. Anyway, you can find about her on your own, but you came here to find out about the market. Katrina has changed significantly in the past few days as it relates to the markets.

Last week, the news was that Katrina would not be much of a threat to the oil producers in the Gulf of Mexico. Today, that thinking is being significantly challenged as the path and strength of Katrina have both proved it wrong. As I checked the oil market tonight, it had traded above $70 with a jolt of over $3 tonight. And, gas had jumped about 25 cents a gallon. Both having broken out over their respective highs of the past month. Back at the stock market ranch, the futures, although somewhat better now at about 10 pm CDT, were down strongly indicating a bit of a drop in the market at the open on Monday. These things don't always hold overnight but the potential for a down Monday morning is pretty strong tonight.

We gave you what has been a pretty good call on the stock market peak in early August. On Friday the market, in terms of the Dow, broke under the 10,400 figure... say it ain't so. We have seen the Dow trade between 10,500 and 10,700 for the better part of July and August so there is some fairly good overhead supply above the market which should put a pretty tight lid on any upside over the near term. The Dow's 200 day SMA has still not turned down but it is pretty much flat. With any negative close tomorrow and even a positive close, as long as it wasn't more than 70 points, will cause the 200 day SMA to actually turn down. This would help confirm the down move we have been expecting since the beginning of the month.

The down move tonight has some basis in Katrina but when trading starts in the morning there is the downward pitch of the market doing its own pushing that will make for more interesting trading than Thursday last week. There seems to be a natural reaction for traders to let the market drop in the morning and then buy it back especially on Monday's. This week there is a strong bias to the downside built into the market and this "natural reaction" may not actually happen.

We are short and continue to believe the market has much more to go on the downside. I realize we are near the end of the month and near the Labor Day holiday, both good reasons for a bit of strength but when the market wants to go down, well it will. We will be back here tomorrow evening to review the happenings of Monday's trading which could be fairly volatile. Hopefully, we can make better sense of it after the day's trading is done. Since we are short we are not too concerned about any downdraft.

In the background of Katrina is gold and the other precious metals. They are up tonight but the trader's commitments from last week were not any better than the week before. We might be given a little rally tomorrow as the markets try to figure out the right path but we are getting somewhat concerned about our mutual fund, BGEIX. We have a nice profit in it and want to preserve it as much as possible. We were thinking it could rally to the highs of the year but we are getting more skeptical by the day. Stay tuned.

Dow Industrials: 10,397.29 -53.34 (Lowest close since July 7th)
BGEIX: 11.32

PS Last Friday's news seems trivial in comparison to the latest news but Greenspan did make some comments about the housing market that we probably agree with for a change of pace.

But my favorite line goes like this: "History has not dealt kindly with the aftermath of protracted periods of low risk premiums." Greenspan

Who would have protracted periods of low risk premiums, if not he and the FED?

Thursday, August 25, 2005

Is Anyone Awake?

Today was one of those days that you just want to be somewhere else. The market was about as dull as it could be and trading was light. For it's part, the Dow traded in a very narrow 35 point range today and it looks like the patient is in a flat line situation again. The participants are waiting for the Labor Day holiday to defibrillate this market. With the end of the month again in plain sight, we could have some strength but the Dow has shown remarkable weakness since Monday's intraday high near 10,650, closing at 10,450 today. (A close below 10,500, that's two days in a row.)

One other sort of interesting thing with the Dow being under 10,500 is the position of the SMA's with both the 50 day and 200 day being right on top of each other at 10,539. The Dow is now below that and can start to pull them down and in fact has pulled the 50 day down but has only managed to flatten the 200 day. OK, so it's not so exciting but it does beat the trading day today.

The other exciting thing today was our prolific Erick in the comment. He is giving all of us some reminders about the way the Japanese economy faltered in the last fifteen years. He mentions liquidity drying up as one of the possible catalysts to a bust. Hot markets, like real estate now and the NASDAQ craziness of the late 90's, generate their own liquidity. But, in the times of a downturn, the liquidity does dry up. This will be part of the next downturn as real estate will become one of those dried up liquidity holes.

The other driver for a bust was a shock to the system like an oil or currency crisis. Well, let's see, the oil shock doesn't seem to have done too much so far as people continue to live life pretty much as they always have. Maybe their use of credit is up a bit but that won't affect their monthly payments too much for a while.

A currency crisis is also a definite possibility as the dollar is having a little trouble right now and has for several years. Will the Euro or the Yen be able to compete with it or not? The Chinese have already set the tone for less dollar assets when it changed the value of the yuan.

Don't forget that Japanese real estate, residential, has dropped 70% in the last 15 years. You have heard the arguments about the fact that "they aren't making any more land" in order to convince yourself that real estate prices can only go up. Well, Japan is not very big and their population has grown in the last 15 years but what about real estate? We believe that the housing market in the US could stand a little cooling off but 70% seems scary to us.

Real estate is a big worry here at the Wednesday Update because of its hold on the whole economy. The real economy is the real estate market which is part of the financial economy. We can only watch and pay down as much debt as possible.

Thanks Erick.

Dow Industrials: 10,450.63 + 15.76
BGEIX: 11.34

Wednesday, August 24, 2005

Real Estate, Oil, or Durable Goods?

The past several days have been sort of a slow bleed in the Dow Industrials (and the precious metals). We have repeated our "sell all rallies" cry and the market has been getting rallies and then selling off so you all must have some clout with the amount of transactions you make. Seriously, the market wants to go down and it is starting to succumb to the beat of the down drum. It's now a question of how far can it go down over the next couple of months.

This morning we found out that durable goods orders for July were down 4.9%, after forecasts of down 1.5%. That was enough to keep the market down for the opening but then the new home sales set a new world record of 1.41 million on an annual rate. That report sent the market up on the day before the new world record oil price over $67 slammed the market for over 84 points in the Dow by the close.

These events are all bad even though the market celebrated the home sales. Durable goods orders represent the type of things that go into new homes like a fridge, a washing machine and a furnace/air conditioner but they showed down 4.9%. But new homes sales were up, you say. Well, that is true but underneath that number was the number of new homes on the market, the so called spec homes (speculation homes, the ones that builders build hoping for someone to come buy them). The unsold homes out there is at a very high 4 months of inventory, assuming the current rate of sales. What happens if the rate slows, that would mean the number of months of inventory would rise. Well, maybe higher oil isn't such a bad thing for the stock market but it seems bad to have it so high.

And, more real estate news as yesterday we heard that the existing home sales dropped unexpectedly and that inventory of existing homes were at a 4.6 months. These inventory levels are starting to show some signs of the real estate market getting tired, especially taking the inventory build of new homes in today's report. We want to keep a close watch on these developments as the next few months go by. Some whiff of weakening in the real estate market will have a dramatic effect on the stock market. We will see.

Meanwhile, the talking heads on the TV are not connecting the same dots we are. I had an opportunity to watch a couple of "experts" on TV on Monday talking about the continuing real estate boom. They seemed to think that 'bubbles" are a regional issue more than a national or international phenomenon. Our position is that the housing market has allowed people to spend beyond their means and if that changes people will change the way they spend money and it won't just be in California. It will change the structure of the economy, maybe the global economy but especially here at home in the USA. And, it will feed upon itself, just like it did on the way up. Real estate is a much more difficult asset to sell than stocks so the effect will develop over a little time, so the more immediate effect will be felt in the stock market.

We are keeping a close watch on our precious metals holdings as well and have been disappointed in the short term that they have dropped so much. Our last post indicated that the commitment of traders' report was a bit bearish and now the HUI has decided to drop below the recent low near 200. We want to see one more good rally from here to see if we should stay in or get out. We mentioned the True Contrarian's site and have now read it. He is deeply bullish on gold and silver and we are getting a little cautious in here. His report is that precious metals typically show a low in late August so we will hope that today was that low.

Dow Industrials: 10,434.87 -84.71 (let's see, we're under 10,500 again, look out)
BGEIX: 11.30

Sunday, August 21, 2005

Sunday Musings

Just a quick note for those of you who decided to come back here before Wednesday's post.

I checked the commitment of traders' report for gold and it has gone very bearish for those of us in the precious metals sector. We are not prepared to sell our little gold mutual fund, BGEIX, but we wanted to let you know that the building blocks for higher prices are not under the market as they were a couple of months ago when we got in.

The basic idea is that we don't want to fight against the commercials when we decide what to do with our positions. They are now heavily short and we would be foolish to stay at this party too long in the face of their positions. If the metals give us another pop in the next week or so, please take your profits.

One other thing you can do to find out what is going on there is to read the True Contrarian link to the left. He normally posts a new message on Sunday evening but not always, sometimes he posts on Monday or not at all. He will probably be more bullish than we are but it would give you a good sense of what is going on the precious metals market.

Have a great week and we'll be back in a couple of days. If something happens in the next two days there should be a post on Tuesday evening but, if not, we will post on Wednesday evening.

You know our position--stocks peaked in early August and all rallies should be sold. We will be especially watching for a buying opportunity in the fall or should we say autumn after the fall.

See you back here in a few days...

Dow Industrials: 10,559.23 +4.30 (wow)
BGEIX: 11.62

Thursday, August 18, 2005

Google Boggles

The stock market tried to put on a happy face after opening down this morning. At least the Dow was able to muster a gain, to the tune of 4.22. The broader market wasn't doing so well and didn't finish all that well either. We are in the period of time that seems to show a lot of uncertainty with the market up one day and down the next. To me, this is a definite sign of a turn in the market.

The technicals that I follow are starting to turn over and the short term ones actually are showing some signs of being oversold. As you know, one of our favorite indicators is the five day average upside volume. The highs in this index tend to coincide with highs in the market. Tonight that index is at the lowest point since the first week of January when we had that big drop in the major indexes. The question now is, "Does this indicator work to show oversold conditions as well as predict short term peaks?" We don't normally look to this indicator for low points so maybe it's telling us that we are about to go down hard. That would not surprise us as the market has already turned over and is heading down. It's only a matter of weeks before we see a steep drop so maybe the 5 day upside volume indicator is getting us ready for a weak bounce in prices only to be followed by a swan dive. We will see.

GOOG is in the financial news today, making an announcement that it wants to issue 14 million more shares of stock. At the same time the Wall Street Journal said something about GOOG being a value play. Which is it??? Should GOOG be selling a "good value" or are they correct in selling out 14 million new shares? We have the opinion that GOOG is OVERVALUED contrary to what the WSJ may say. Since the article in the WSJ probably was written prior to GOOG's announcement, we think that the author may have been a little more cautious in his statements.

We also noticed an article on CNN today talking about the housing market and how prices are not going up as much as they have in the past several years. These are little things that we are trying to pay strict attention to due to our stance on the housing market being the fulcrum for the stock market.

In fact we think that this recent bond market rally, reducing mortgage rates, will not produce much in the way of additional activity in the housing market. If that truly happens, then we are going to be much more confident of our longer term forecast for much lower prices in stocks. If the stock market gets wind of some storm clouds on the horizon, there won't be much hesitation to sell especially now that the market seems to have rolled over. (The bond market was up today erasing yesterday's losses but forming a similar pattern to the stock market going up one day and down the next. )

Dow Industrials: 10,554.93 +4.22
BGEIX: 11.55 (this hurts after being over 12 in the last week)

PS Just a reminder that we are planning to be off the Blog until next Wednesday evening unless something big happens tomorrow or Tuesday. Please come back next week for more on the developing bear market...

Wednesday, August 17, 2005

PPI Cools Bond Market

Today's read on the Producer Prices, up 1%, was a little more like inflation to the bond market. Expectations were for half that and the "Core" rate was up 0.4%, quite a bit higher than the 0.1% expecations and too close for comfort for the bond market.

As the bond market was unwinding its gains from yesterday, the stock market was enjoying a little rally brought to us by HPQ and AMAT to mention a few. The stock market gains were somewhat muted by the end of the day as we see some very heavy trading going on these days, meaning, stocks are having trouble going up, not meaning heavy volume, which there really isn't.

You would think that with the kind of inflation the PPI brought this morning, there would be some upward motion in the precious metals but there was only a large thud. People must think that there will be more Fed intervention pushing up rates and causing less reason to purchase gold. That doesn't make sense but I don't know what is going on. We suffered a little setback in our mining position today. The uptrend in the mining stocks is still in place but we don't like these types of days as bulls in the metals market.

The internet virus or worm we had at work today was still operating and systems were slow and my PC rebooted several times this morning. We like to keep an eye on the markets during the day just because of events that may be going on due to news. Today kept us from that all together. Sometimes work gets in the way but today it was the internet/worm/virus. Hope your computer day was better. Anyway, productivity was poor at many companies around the country due to this virus/worm.

Dow Industrials: 10550.71 +37.26
BGEIX: 11.68 (ouch)

PS There will be no Blog posting early next week due to me being away from my computer. We will post tomorrow evening, Thursday, and then we will post on Wednesday next week unless something spectacular happens on Tuesday and then maybe Tuesday.

Tuesday, August 16, 2005

Down Day

The stock market had quite a bit of news today including a 0.5% increase in the CPI, which translates to about a 6.0% annual rate of inflation. But, don't worry, the Core CPI, you know the one excluding food and ENERGY, was only up 0.1%. The bond market didn't seem to mind one bit and was strong all day.

The other early news was from WalMart, John Deere, American Eagle, and Gateway. WalMart said net income was only up 5.8% the smallest quarterly gain in four years and said rising energy prices is forcing them to lower forecasts. Gateway, well, not that it really matters, was roughed up by about 20% (ok not much in real dollars as it closed at 3.11). John Deere dropped over 11% after announcing earnings and providing lower guidance. American Eagle was down almost 10%.

The market had too much to deal with today and fell 120 in terms of the Dow and about 1.5% in the NASDAQ. All in all a pretty rough day. The Dow closed at the lowest point since early July. So, will this downtrend continue?

Well, when the regular market session closed, HPQ (Hewlett) announced earnings and raised guidance pushing the stock up 6% after the news. And, AMAT announced earnings saying that they probably saw the low point and now things should be good from here. Eternal optimism for the stock market, a virtual nirvana. So, of course, the after hours market was alive and well pushing the futures up to get ready for tomorrow.

Our position? Well, let me see, no, we haven't changed our minds. We still are looking for a drop at least until October. Then we will reassess, until then sell rallies.

Gold is pushing through resistance in the $440-$450 area but the mining stocks are starting to get a little sloppy. We will probably be waiting for a good spot to step aside for a while. We are looking at the HUI near 220 with heavy resistance up around 240. If we get near that area we will be happy to take some profits.

Dow Industrials: 10513.45 -120.93 (almost blew right through 10,500 without stopping)
BGEIX: 11.95

PS So much going on today, I'm sure there was a lot that I didn't mention. I know I forgot to mention the big computer virus that struck many companies, including the one I work for. We were having some trouble with our systems all day today. I'm hoping to get back to business tomorrow, we'll see.

Monday, August 15, 2005

Another Selling Opportunity

Today the stock market staged one of those Monday rallies even though it started down a little in the morning. The reason stated by the media was that oil prices eased giving the market some added upside.

Well, we beg to differ with the media about the reason for the rally. Of course oil and gas have been going up without pause for several weeks now and at least here in Minnesota prices are 2.65.9 as I was coming home tonight. But if you recall during that same period that oil has gone up, the market was going up, too, daily fluctuations notwithstanding. The stock market is not reacting to the oil prices like they would have you believe.

In fact, today's rally was brought to you by "Monday" would be just as good an excuse since we have generally seen early month and early week strength just because it's a new beginning. We don't feel any particular compulsion to believe that if oil drops the market will rally, instead we think the opposite if at all. The market and the oil may have topped at the same time.

Another big headline today was the housing market and how prices have gone up a record amount in the past year. Meanwhile, Delta Air made an all time new low as it struggles to stay out of bankruptcy...

Today was just a little upside in an otherwise dull market. The top put in place in the first week of August remains our guide. If that is broken to the upside we will have to be patient again. For right now, we are extremely bearish and with today's rally, we had a great selling opportunity.

One big negative about today's rally was the low volume. The bulls need volume to sustain any type of advance. In the dog days of summer, that doesn't seem to be in the cards but we will see. Our position is CASH at least until October and then we will reassess.

Where are your investments going?

Dow Industrials: 10,634.38 +34.07
BGEIX: 12.00 (Gold was down hard and silver is under $7 again)

Sunday, August 14, 2005

A Fresh New Week

Last Friday the market was soft on the heals of DELL's announcement on Thursday evening that the world was not as great as they had hoped. DELL managed to drop about 7.5% by the end of the day dragging down the market a little too. By the end of the day, the traders had enough of selling and bought some going into the closing minutes. I suppose it could have be some short covering ahead of the weekend.

There is not much to say this evening as we wait for trading to open in the morning. We are looking for continued weakness in the market over the coming months and recommend selling into all rallies that develop. If you have been following your own stocks over the past several months that this little rally has lasted, you have either noticed they haven't followed this up trend, they are weak indeed, or they have rallied with the market which means it's a good time to take some off the table. We will see how trading goes this week for more clues as to the topping process that has taken place over the past two weeks.

As far as the precious metals go and considering the gold bearish commitment of trader's report, we are getting very cautious this sector again. We have seen a nice run up but we don't want to lose out on some good profits. Let's see how they all trade on Monday to get a good idea of what we need to do. I have almost convinced myself to sell my position in PAAS on Monday especially if we get any strength in silver. I will keep you posted and report again tomorrow.

See you back here tomorrow.

Dow Industrials: 10,600.31 -85.58 (nearly back into the 10,500's)
BGEIX: 12.13

Thursday, August 11, 2005

Dell Disappoints

The market decided to turn that frown upside down Thursday as the Dow pushed up to that 10,700 mark it tried to hold onto on Wednesday. Today was one of those remarkable days we have seen quite often, as a matter of fact, when the markets are ALL up. Bonds were up, stocks were up, gold was up $9, oil made a new world record high at $66 but the dollar did have a bit of a down day. Still, with all the other markets up, who was noticing the dollar waste away?

After peaking in early July, the dollar has traded sideways and down. The dollar (index) traded over 90 in early July and now it is just under 87. Gold on the other hand is at a 4 1/2 month high. Would somebody tell silver to run a little too. It is badly lagging gold at the moment even though PAAS is trading firm. We mentioned a few days ago that it looked like the precious metals sector was tired of going down and that little drop was the spring board to today's big $9 up move. We have such a nice profit in BGEIX right now but we will continue to hold for now.

After the bell, DELL, rhyming is good...pardon me. After the bell, Dell presented a pile of information (that was kind wasn't it?) that suggested the next quarter wouldn't probably be quite as good as they had thought. And, by the way, while revenues were up they were on the thin side this quarter. Now, you know that DELL can not be set aside as a one off problem due to the heavy reliance on DELL in the tech world(even though it only makes boxes). If they are saying revenues are going to be scaled back, the rest of tech land needs to take note.

And, the market traded down after the report such that the NASDAQ 100 lost about two thirds of what it had gained today. Several other computer stocks had some air taken out after hours. This is not to say that there can still be some partying but the air is thin up here and many stocks need to come back down a little bit to get some oxygen if nothing else.

Dow Industrials: 10,685.89 +91.48
Bgeix: 12.09 (twelve, wow, nice day, who recommended that at 9.71?)

PS Happy Birthday, Son

Wednesday, August 10, 2005

Reversal Day

Last night we failed to mention the two stocks of interest, AIG and CSCO. AIG had great earnings and CSCO did too but CSCO said some down beat things about the future. So, CSCO went down after hours last night and AIG was up. This morning saw a big pop in the Dow to the tune of about 100 points an hour and a half into trading--stunning when you consider what else is going on at the moment. But, that's the kind of effect a stock like AIG can have on the market.

So much for our thought that last week's highs would hold, at least in the Dow. Meanwhile, some of the other indexes were not showing that kind of strength and were not really close to moving back to last week's highs. For example, the NASDAQ COMP traded at 2220 last week and today's high was around 2185 and the SOX traded at 486 last week but only at 476 at today's high while the SP500 traded within 3 points of last week's high. The only one we follow that dared move above last week's high was the Dow and only a little bit over last week at that, about 20 points. And, if you look at the highs the week before that, today's high in the Dow was only a couple of points higher than that. We mention this because we want to keep our eye on the market rather than whoever is on TV at the moment.

But anyway, from that high about an hour and half into the trading day, the market leaked until we went out on the lows of the day with the Dow off about 20 points and back into the 10,500's again. We think today's reversal was important as it happened right at the point the market should have resisted an up move and it did. Looking at the charts, if you remember what an outside down day is and its potential, you see that the NASDAQ COMP and 100 both had nice outside down reversal moves today. This is a bearish chart because it means that people were very aggressively buying in the morning only to get sold later in the day without other buying to help them out. This kind of thing can cause short term fear--we are still sitting on the position that last week's highs are to be respected. We are very short against those highs.

The precious metals sector seems to have indeed turned the corner over the last couple of trading days and has shown some strength. We were a little disappointed in the move that our little mutual fund, BGEIX, had compared to the HUI but we will take it for now. There is a possibility of a nice rally right here. We will enjoy it. We have been patiently waiting for over a month.

The rout in the REITs continues today with IMH cutting its dividend by 30% or so and getting sold to the tune of about 15%. This REIT still pays about 15% in dividends annually but if you are getting touched to the tune of 15% in one day, you may want to hold off for a second.

FNM (Fannie Mae) continues to have troubles figuring out how much to report for earnings so could you all wait till, say, the middle of next year. How's that for you? Well, over the course of the last year, the stock has dropped from a high of 77 to today's 52. Some bull market in housing when you have the king of the mortgage makers dropping by a third.

Sorry for the long post tonight but today was a very important day in the market. The volume on the NYSE was the highest its been since late June when we had a couple of triple digit down days in a row. High volume, key reversal (outside down day), real estate is turning over and oil pierced the $65 level and all of these contribute to a very bearish outlook.

Happy trading--what I mean is be careful.

Dow Industrials: 10,594.41 -21.26
BGEIX: 11.60

PS Erick, nice golf round. But, you didn't mention how your indicator was doing??? Surely it must be following the pattern of what we outlined in this post. Great to hear from you.

Tuesday, August 09, 2005

Extra Innings

A couple rate hikes ago, we heard from Federal Reserve Bank of Dallas President Richard Fisher that the Fed was in the eighth inning of their ballgame of interest rate hikes. This implied to many that the ninth one would probably do it and today we had the tenth. Well, I guess we are into extra innings and you know how these games can go. You just never can tell when the error is going to come but you know that it will.

That all said, the stock market came out smoking this morning. Well, you know it's been down several days in a row and we just can't have that. I don't care that the Fed is going to raise rates or that the oil prices are never going to back down, let's buy 'em and so they did.

I don't get too excited about days like today. The market needed to ease some of the recent selloff and create yet another opportunity for the bulls to misstep. Last week's highs are hardly a distant memory to most market participants but not to us. Those are our guideposts this week and we are navigating in these treacherous waters to see if ... you know, I can't come up with another metaphor to complete this obsurd sentence. But, we do think last week's highs will hold and the market shouldn't really even try to test them.

This rally today is designed to throw the bulls off course a little. The point is that the market can go up in the face of all these negatives out there. That is supposed to give strength to the bulls. Well, be careful with that thinking going into the fall. (I always like that, falling into the fall, it's the little things that please me)

Our main focus has been the precious metals and their stocks. The little downturn they have experienced over the past several days seems to have exhausted itself over the past couple of days. Usually interest rate hikes are bad for metals--you know the whole gold doesn't have "babies" or have dividends so it gets more competition from bonds when rates are higher and the dollar usually likes higher interest rates for the same reason, both pushing gold down.

Anyway, today the gold complex was firm and we are more confident holding our positions.

Dow Industrials: 10,615.67 +78.74 (I know, I know, it's over 10,500 again)
BGEIX: 11.40

Monday, August 08, 2005

Tuesday: Merry Men from the Fed

I'm not sure what the stock market must be thinking at the moment. On one hand, there is oil at a new world record of $64 and, on the other, there is the Fed continuing to raise rates one notch at a time. Tuesday is one of those notches and the market will do everything in its power to buy the news. We think that the highs from last week will firmly hold any buying that may, or may not, happen after the announcement at 1:15 CDT.

With the incessant upward march of interest rates, the mortgage market will slowly heel to the lead of the bond market. The stock market, with its more less disciplined movement will continue to resist the tug of the bond market. As rates go up and stocks go down, there will be a natural tendency for people to move their money from stocks to bonds (no, we are not suggesting that anyone do this--our position is more to have CASH to buy selectively when the time is right).

Right now, there definitely seems to be a change in market sentiment overall. The stock market shows a fairly good top in place from last week's highs and we will watch that peak closely. The leadership has lost some direction and that may be too much for the broad market to handle. There is much time for the market to drop into October and, while a big drop is not imminent, it is looming. Prepare. Oh, and look for another 25 bps from the Merry Men at the FED.

The precious metals in general have done ok over the past couple of weeks but we thought they should do better given the surge in the mining stocks. Silver has gone under $7 again which may be shaking out some weak hands. Still, there is a nice profit in BGEIX and we want to be watching for more definitive signs of a reason to get out. The True Contrarian is quite bullish and for further insight on the market use the link. He didn't publish last week, so he was due, and he's a good read, so enjoy...

Dow Industrials: 10,536.93 -20.10 (Three down days in a row, and in the 10,500's)
BGEIX: 11.40 (pulling back from its recent run)

Sunday, August 07, 2005

A New Era Has Begun

While there is much to say, I want to make sure that we mention that the real estate market is probably going to show some signs of weakness. The next couple of months will be filled with opportunities in the housing stocks on the short side. Take a look at the chart for HME, a REIT, (you can use the Big Charts link to the left) for a dramatic look at the type of scare the real estate market had last week. A 10% down move doesn't seem like much when you think about it but when you see in on the chart it gives you a better idea.

The bond market decided to break down a little instead of trying to make that bottom we have talked about. If we see rates rise some more here, the fall housing market could be in a world of hurt. This is the tip off to the stock market that things are not as they have been. Of course, the stock market participants can and have tried to ignore any bad news but that thinking is about to catch up with them. The sweeping change in real estate psychology can and probably will overwhelm any valiant attempts stock bulls may have to hold up the market going from here. Real estate prices will not fall a fast as stock prices in the first run and certainly will not be readily seen like stock prices.

Friday's jobs' report was a little upbeat but the stock market didn't really think much of it and declined on Friday led by housing stocks, not such a good sign. The bond market just went down, meaning rates went up.

We are getting prepared for a slow rollover of the stock market here and expect, as we have been saying for a couple of months that the decline should take us into October at the least. More the rest of the week, we should have an exciting week so come back every day.

Dow Industrials: 10,558.03 -52.07 (Do I see 10,500 again? I think I do.)
BGEIX: 11.52

Thursday, August 04, 2005

Friday is the Day

We have set our sights on Friday morning as a key point in the markets. The big news on the Street today was that the bulls were lightening up ahead of Friday's jobs report, so we are not the only ones paying attention to it. This report is significant in so many ways such as giving us a better clue again how the underlying economy is fairing in general, how that will affect the bond market and in turn the mortgage market, the reaction the stock market takes to the news as well as bonds and the dollar and of course the metals, and will the Red Sox be able to win the World Series again? Oh, I just threw that one in there to see if you were keeping up.

This morning, the Bank of England Lowered its interest rates from 4.75% to 4.50% in a widely expected move (not to me). There seems to be some confusion in the world about the direction of the global economy. Britain is hopeful for better times ahead but wants to lower rates just to be safe. The ECB (European Central Bank) did not follow suit today but that could be just around the corner.

Tonight's post is mainly marking time waiting for the reaction tomorrow morning. As you know, the news doesn't seem to be very important, just the way the market moves on the news. And, don't forget the first move may be reversed, especially if it is an up move.

We saw how the market traded today in anticipation of the jobs report but don't really put much stock in that. The number is still unknown (to most of the world) so we have to wait like everybody else. We do expect the resolution to be to the downside but the bulls have managed to keep it up here for a while. Friday morning will provide you a very good clue about the next big move--which we think will be down.

In June the bond market topped at the very moment the June jobs came out and has not been able to get back to that level since. This week we may see the same thing in the stock market.

If there is something to report, I'll try to add my two cents after the report comes out in the morning. No Promises, but good luck after the number comes out. We are looking for some bear relief.

Dow Industrials: 10610.10 -87.49 (getting very close to that 10,500 again)
BGEIX: 11.61

PS There is some concern in the market place that Saturday's 60th anniversary of the Hiroshima bombing could be a target date for more terrorist activities. This could also weigh on the market later on Friday. I don't know where this stuff comes from I just report it.

Wednesday, August 03, 2005

Gold Shows Some Luster

While we wait, impatiently, for Friday's trading day, (you know, the one that has to trade after the jobs report) we at least had a good time watching gold today. Following the strengthening of the mining stocks yesterday even while gold itself was lack"luster", today's exhibit was fairly spectacular. Gold was up about $5 today following a steaming performance by the HUI of over 10 points almost 11. That is reflected in a nice move in BGEIX today, check it out below.

Gold is running into some overhead resistance near $440 but based on the move in the metals, it seems likely that it will push through it. Silver seems to be a bit of a laggard here and we're not sure why. Our PAAS position did manage a nice 5% move today, along with the HUI, despite the rather unispired move in silver.

This is the upside move we have been hoping to see in the mining stocks. (There has been some concern expressed in these pages that we might not get it.) We are getting to a point where we need to be thinking of an exit strategy even though the break out just occurred. We will keep you posted. For our BGEIX position we are up nearly 20% over the past couple of months. Good move. (My position in PAAS that I've traded twice and now hold the third time is up nearly 40%. Without the trades, it would be up 30%.)

But enough about me. Tell me how your trading has been going.

Happy Trading--get ready for Friday, only one more day to go.

Dow Industrials: 10,697.59 +13.85
BGEIX: 11.62 +0.51 Nice!!!

Erick has another comment after yesterday's post. I believe it sounds like deja tu.

Tuesday, August 02, 2005

Stock Market Eschewed

Rather than spend a lot of time discussing the trading day today, I thought I would concentrate on the comment we received from Erick (go back to yesterday's post and read it yourself). My central premise about the stock market continues to be that the end of the credit expansion will push the stock market over the edge.

I think it's important to understand that the ATM most people live in seems to be providing the ability for people to continue spending more than they earn. Today's report from Freddie Mac indicates that in the second quarter, 74% of their mortgage loans were cash outs compared to just 33% in 2003. The CNN article indicated that it was ok because most people were putting the money back into their homes by way of improvements, or they were using it for their kid's college education or to buy vehicles. There is some risk here.

There are other issues with mortgages like the ARM or neg-am or interest only loans that people are using to purchase homes. If rates go up, there could be a problem. We have indicated that the bond market seemed to be looking for a tradable bottom but so far that hasn't materialized and rates are indeed going up. We would be concerned about all those loans that will need to be increasing their payments should those rates go up.

One key point about the mortgages of today, there is little if any down required to purchase homes these days. Back in the 1920's, you needed to have about 50% down to buy a house and today...not much. But, the margin requirements on stocks is 50% now because of the 1920's rules that you only needed to put 10% down to buy stocks. If rates go up much at all, there may be a large squeeze on some of these mortgage payers. The unfortunate thing about all of this is that so many people are now dependent upon real estate for their financial lives, both their jobs and being able to use their homes as ATMs. We shudder to think what might happen.

Our advice has been and will continue to be, pay down your debt as much as you can. You are being given the opportunity to do so now but the temptation is to expand your debt. Be careful.

As for the stock market, we are waiting for Friday morning. The first week of the month is like this. Go take a look at the bigcharts on the links and use the symbol NDX for the NASDAQ 100 average and look at a five year chart, either daily or weekly. Tell me if you see anything that looks like a reason to be in stocks since January 2004.

See you tomorrow.

Dow Industrials: 10,683.74 +60.59
BGEIX: 11.11 (NEM and ABX were strong today)

Monday, August 01, 2005

ISM Manufacturing Index Shows Growth

Today the market found out that the ISM manufacturing index topped estimates and it is above 50 so it indicates growth. The bond market didn't like this number and the fact that oil traded at a world record price (on the back of the announcement of the death of King Faud of Saudi Arabia). Bonds (US Treasury) fell through last week's lows and are now back in the down trend line we have seen for the last couple of months.

The bonds should attempt a rally to get them back toward that June high but it doesn't have to happen. We think that the rates need to drop one more time and housing not to follow for us to see a pretty good sized crack in the stock market. That could be happening now. As I drove through my old neighborhood this weekend, I noticed there were many open house signs along the road. I wonder if they aren't selling quite as fast as they once did.

Not much to report in the stock market today which is why all the talk about the bond market. As you know, we think the sudden contraction in credit is going to be very damaging to stocks so we are paying particular attention to the bond market and the real estate market. We are hoping to get a whiff of danger from them although if we do see some obvious break there, the stock market will not like it one bit.

I noticed today that Ford and GM are going to be cutting prices on their 2006 models to be more competitive and give us value for our purchases. Do you suppose they are having trouble selling cars? That would be my guess but the "employee" discount program seems to have gone a long ways to unload some of their inventory; but, will their strategy to lower sticker prices without rebates be successful?

Dow Industrials: 10,623.15 -17.76
BGEIX: 10.98