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?