Thursday, September 29, 2005

End of Quarter is Here

The market finally decided to have an up day.  The news was not particularly bullish but the quarter is drawing to a close and we still have to have our rally so we did.  The first report on the market tonight was “traders were hard pressed to come up with a reason for the rally”, noteworthy press.  

But, now what?  The market wants us to believe it has the capability of rallying but has shown very little strength until today.  So, how strong was today?  The market is managing to work off its oversold condition.  With the big move we saw today, guess what, the Dow Industrials made it back into the 10,500 range again.  We figured this week it would try to do that and today it succeeded.  The end of quarter and end of mutual fund fiscal years are upon us tomorrow so the usual stocks need to move up so that the money managers can show what a good year they had.  Yes, sarcasm.  

This being the last post of the week as we wait until next week to put on any new positions, we thought we would keep it short due to the low level of news out there.  But, the one item that seems to escape the country is that Rita made a pretty good sized dent in the energy producers in the Gulf.  The Wall Street Journal will have an article titled “Gulf Energy Facilities Get Off To a Slow Restart After Storms”.  The article gives some thoughts about what is going on in the real energy market, where the energy is produced not in the financial market.  The article mentions that the undersecretary of energy thinks “consumers need to know” that heating your homes will cost about 50% more than last year.  The reason they “need to know” is so “they can take steps to do something about it”.  What exactly does he think we can do, move south where heating your home is not really necessary?  Thanks for the tip Mr. Undersecretary of Energy.

The precious metals sector was on fire today as it continues to out perform the broader market.  We of course are out of our position and today was the first day that we are disappointed about it.  Oh well, we will have another chance at this sector again very soon.  And, if not, we will have other opportunities.  

Have a good weekend and we’ll see you back here on Sunday evening.

Dow Industrials:  10,552.78   +79.69
BGEIX:  13.55   (oh well, I guess we left a little on the table)

Natural Gas

Last night when I finished up the post, I realized that I had forgotten to mention natural gas. Yes, FNM dropped 10% but natural gas made up for it by jumping 10% yesterday. So, when you wonder if the hurricanes might have disrupted things at the refineries, that is a pretty clear indication. The price of oil has not risen too much over the past few weeks but the prices of Processed energy products like gas and natural gas have been climbing, with natural gas the clear leader in price increases although heating oil is right behind. Natural gas has risen an eye popping 100% since last year at this time. This means that home owners, especially those of us in the north land, will see a substantial increase in the price of heating our homes this winter. I guess I'll wear a sweater. We had 37 degrees here over night so we are "fall"ing into winter already.

Wednesday, September 28, 2005

FNM Drops Another 10%

The August durable goods orders surprised to the upside, up 3.3% over July, with expectations of only 0.8%.  So, the economy is giving mixed signals and we need to be able to decide what it all means.  We do that by looking at prices of stocks.  

With that in mind, let’s take a look at one of our friends, Fannie Mae, FNM.  We know it’s a little self serving to the bears but we mentioned last week (in Thursday’s post) that FNM and WMT had not gotten much press on the prices of their stocks making multi-year lows.  Well, today FNM did make the news as its stock plunged over 10% after more news about its accounting came to light.  

The real stock prices are measured in the averages that we watch and the Dow Industrials have now posted three up days in a row, even though the total move in those three days is only 53.50 points.  We had talked about the positioning for a bounce as we headed into the end of the quarter and that the market had gotten a bit oversold.  Well, tonight the market has now released some of the oversold position and the little rally, or non-rally, we have had has given us a much better neutral situation.  

We are probably going to be sorry about this decision but we have put off our new positions until next week assuming that the market will find some way of closing stronger into the end of the quarter.  

Meanwhile, the Japanese market has quietly moved higher since the lows of May.  As measured by the Nikkei 225, that market is up about 20% in that period.  We had hoped to catch a little ride on the foreign markets after the Dow Industrials dropped so we will keep our eye on this market for sure.  The Nikkei 225 is trading near 13,500 after bottoming out just under 8,000 in 2003.  We want to remind you that this market traded near 40,000 back in 1989.  We think the Japanese market is the key foreign market to watch.  The European markets are ok also but the Japanese market has shown some good strength after over a decade of declining prices.

Dow Industrials:  10,473.09  +16.88
BGEIX: 13.27

Tuesday, September 27, 2005

Two Reports Disappoint

The market struggled again today as two big news items appeared, consumer confidence and August new home sales, both not so good.  Consumer confidence fell or plunged to 86.6 from last month’s 105.6 with expectations of a drop only to 95.  This is the largest drop in confidence since back in 1990 when Iraq invaded Kuwait, at least some of you might remember that period of time.  This drop is even more than the drop after 9-11.  And, this is the lowest level of confidence in two years, 81.7 back in October of 2003.  The confidence number is based on current information and does reflect some impact from the two hurricanes and possibly other things like the last rate hike from the Fed.  People are worried about the future and that means we may just have a shift in the way they view their lives.  

The other number is the new home sales for August.  This represents activity Prior to the hurricanes, or should we say lower activity.  New homes sales came in about 10% lower than July and fell more than expectations of a 2% drop.  The numbers are not staggering but, when taken in the context that they were before the hurricanes, they take on a much greater significance.  

We here at the Wednesday Update are all over these two numbers because they fit into our thought process for the near term.  The cracks are starting to appear in housing which in turn will lead to less available cash from the big ATM people live in.  That is what we have been patiently expecting.  The confluence of so many problems for the economy are beginning to surface right now just in time for October and a steep drop in stocks.  As I think of the housing situation and all of the many veins of the economy that run through it, I am reminded of an army walking in line and the front guy bends over to tie his shoe and the chain reaction of people piling into him.  Housing sales dropping is like the front row in the parade bending down to tie their shoes.  We are still watching this unfold but the picture is getting clearer.

We are very bearish as you can tell.  The market has tried to stop going down so hard the last few days which could be construed as a temporary stop gap before prices really slide.  The end of the month, end of the quarter phenomenon better hurry as we keep marching toward the end of the week.  Can you envision a scenario of higher stock prices in this environment???  I sure can’t.  

The Fed is on a course to increase rates further.  Oil prices are near record highs.  The stock market has put in and tested some solid highs and has fallen off since then.  The government is trying to run a war in Iraq and a domestic bailout program here at home in the Gulf, not to mention the budget and trade deficits we already have.  The housing market is slowly rolling over—this is the key.  I guess a bull could spin these items to a bullish conclusion, that’s what makes the market move in different directions.

We have some short positions and are ready to move more funds into short positions.  We get to the end of the month and wonder if we will see any bounce in the market going into these normally bullish time periods.  The drop could come at any time including the “bullish” time of the month so we need to make a commitment to something.  So, tomorrow we will.  Always put off till tomorrow the difficult tasks, you never know, you might come up with a better solution.  In the mean time, happy trading.

Dow Industrials:  10,456.21   +12.58  (just a matter of time)
BGEIX:  13.00  (we’re just watching this now)

Monday, September 26, 2005

Oil Can't Stay Down

Today saw a very poor start to the final week of September in the stock market.  After the initial fireworks that pushed the Dow up about 80 points we saw a bunch of back and forth action for the next several hours.  Around mid-day the market headed south such that the Dow was actually negative briefly but managed to rally to close up about 24 points.  I don’t think that was what the bulls had expected going into the day.  There were a few bears who didn’t think so either.  

Oil, which had dropped so much on Friday, about $2.50 a barrel, decided to rally today and pretty much retraced the full decline.  It had been down in Sunday’s special trading session and then on Monday it traded down under $63 but from there it moved up about three dollars to close near $66.  The damage was limited but petroleum supplies got tighter.  That didn’t sit too well with the market.  

It did sit well with precious metals as they opened down fairly hard but rallied massively over the course of the day.  Good thing we’re out, still with the sarcasm.  The HUI did roll over with the market into the last half of the day and, I might add, didn’t close higher than when we sold our BGEIX position and didn’t trade as high as last Monday.  The resistance around 240 in the index seems fairly strong.  We are hoping to see it drop a little before we think about getting back in.

The bond market made it two down days in a row and look to have failed in an attempt to rally higher.  We still contend that the high in the bond market happened in early June with a failed test in early July and another failed test in early September.  The question now is can it break support near the 4.5% level.   (Bonds trade lower to cause rates to rise.)  One thing that bothered the bond market (and us stock market bears) was the news on existing home sales which increased by 2% last month.  I guess we’ll have to wait to see what the hurricanes did to these sales next month.  

The stock market traded very poorly today and the bears won the day.  As we mentioned last night, the market is oversold and is still trading poorly.  We are at the end of the month so it should be trading fairly strong but it’s not.  We are near the end of the quarter and basically the end of the mutual funds year, and it is still trading poorly.  The market seems to want to go down.  We are bearish.

Dow Industrials:  10,443.63   +24.04  (failed to hold the 10,500 hit this morning)
BGEIX:  13.27  (still below our exit point of 13.34)

Sunday, September 25, 2005

Will Drop in Oil Spur a Rally in Stocks?

Here we are in the wake of Rita and the world is breathing a sigh of relief. New Orleans is flooded again but the new damage due to Rita seems mild compared to forecasts. Great fears that may have pushed gas prices up had Rita damaged enough of the refineries in the area, were eased along with oil in a special Sunday trading session this weekend.

What does all of this mean? We think there will be a significant short term effect due to these two hurricanes as we direct many resources into rebuilding the Gulf coast. The market probably thinks the possible economic activity in that region will give a near term rally as early as Monday morning. The futures are not really indicating that too much tonight as they are only up a modest amount. That’s not to say by morning we won’t have more bullishness on display but just that the euphoria of Rita’s weakened hit (this just sounds wrong) hasn’t really pushed the market up much.

Oil and precious metals have taken a tumble since the middle of last week including gold being down over three dollars tonight. We are comfortable having exited our precious metal exposure, at least tonight. Oil, after pushing over $70 in advance Katrina, could only manage about $68 in front of Rita. Tonight oil is trading in the $63 range. You know how we feel about failed rallies—look for more weakness in oil short term.

Gold took a breather since last week after trading almost $480 an ounce it is trading under $465 tonight. We think it could drop to $455 at a minimum. We will watch patiently for another entry point.

As for the stock market, we see stocks on a precipice again. The market has not managed to recover from the selling, on good volume, we saw over the past couple of weeks. Our indicators are getting a bit oversold but… We have said many times that an oversold market is a breeding ground for fear and panic selling. Right now, there seems to be some optimism on the reports from Rita but if the market can’t capitalize on them right now, we think our near term forecast is right on target—lower into October.

We are at a natural point for the market to bounce, though, since it is a bit oversold but we don’t think it’s an easy tradable low. The main concern is the position the market is in. It is possible for a small bounce but we think that bounce should be sold, if it develops. The next big move will be down and it should occur over the next six weeks or so. I don’t think trying to time it any closer than that will help much. Just, do what you think is right.

The bond market had a difficult day on Friday pushing the yield on the ten year Treasury up to 4.25%. We just keep watching for signs of a slow down in the credit expansion. From all reports, it just hasn’t happened quite yet. We will keep a look out. Monday morning brings the August existing home sales report, maybe another good clue. The problem is that the stock market seems to be going down without full confirmation of a slow down in the credit expansion anyway. That may be our best clue after all. We will see.

Dow Industrials: 10,419.59 -2.46 ( 10,500??? Can it happen?)
BGEIX: 13.08 (we are out at 13.34)

PS The blog has 1000 hits. Thanks for coming back.

Thursday, September 22, 2005

Buy the Bad News

We’re wondering how the stock market managed to stay positive through the news of the day.  This morning we heard that the leading economic indicators (LEI) fell for the second month in a row.  The drops of 0.1% followed by 0.2% don’t seem too bad but they were taken before Katrina hit.  You can read the article in the Wall Street Journal tomorrow.  

This news was coupled with the fact that jobless claims surged as the fallout from Katrina starts to take full effect on the economic numbers.  Last week’s number was revised strongly upward and this week’s number is the highest since July of 2003.  Now we are just waiting for the other fierce lady, Rita, in the Gulf to hit land.  Traders seem to be thinking it doesn’t really matter what happens.  Today, Rita was reduced to a Category 4 and reports were that it might drop to Category 3, you know, with winds only about 125 mph, before it actually gets to land.  

Other news was that Delta would be cutting up to 9,000 jobs after declaring bankruptcy, this in an effort to improve their financial condition during the bankruptcy.  

In other stock news, we find it interesting that in the face of all of the complacency there are two big stocks that haven’t gotten very much attention in this market, WMT and FNM.  We have mentioned both before in these pages but let’s take another look at their trading of late.  Walmart has just made a new 52 week low today but did close up on the day today.  The WMT is now trading at a price that has most everyone who owns it losing money.  Fannie Mae is not quite the same but fairly close as it has made a multiyear low in the past month.  FNM started out the year just over 70 and today closed at 46 while WMT started the year around 53 and closed at 43 tonight.  Have you seen anything about these price facts in the media?  These are huge stocks in the Retail and Mortgage markets, two big consumer plays.  We just keep wondering when the consumer will be tapped out.

Then tonight after the bell, Oracle, ORCL, a stock we haven’t mentioned too much here, announced earnings and disappointed.  The stock lost a little in after hours trading but not very much.  We’ll see what it will cause in the market tomorrow.  

So far, our exit of BGEIX, one day, has been an ok decision.  I should have mentioned that I sold out of PAAS yesterday as well.  Now, we will concentrate on the short part of the market and keep an eye on the precious metal sector for opportunities.

We recommend getting out of stocks if you haven’t done so already.  Last night we said we are looking for a big drop right now.  Today gave you a nice lift in prices to take advantage of them.  

Kudos to the Tipster, who saw CMTL jump on earnings news today to a pre-split value of 60.  CMTL is a stock we mentioned some time ago and it has had a volatile ride but today it broke out and made some all time new highs.  

Dow Industrials:  10,422.05  +44.02  (can it fight back to 10,500?)
BGEIX:  13.16  (it’s a habit)

Wednesday, September 21, 2005

Going Down

After making the decision to get out of our gold mining mutual fund last night, we watched with relief as the precious metals complex enjoyed a strong early rally. By the end of the day, the HUI, closing at 243.22, had recovered much of what it had lost since early Monday morning when it traded as 246.84. In fact, the close is the highest close in the HUI index since last November. With that high in place as of the close today, the BGEIX fund closed at 13.34, just a penny shy of the year high of 13.35 also set in November of last year. We are very happy to report that we were able to turn a tidy 37% profit since our entry point on May 23rd.

Enough of that, we have other business to take care of now. The stock market is very dangerous right now. The trading in the past few days has given us a good signal that the next move will be strongly down. The market leaders, housing stocks, have gone into a down move while the broader market has been moving sideways at best for the past several months, if not years, we don’t even want to talk about it.

We are now suggesting that the market should be avoided or sold. Those of you who have been sitting there on the fence or have been bullish, it is time to move. This is not the time to be bullish. The market has turned over and now is headed down. We can only hope that you have taken some money off the table as we waited for the market to go down. The stock market has managed to rally off the April lows near 10,000 in the Dow and now it wants to go down and at least test those lows.

For those of you who haven’t seen a major down move in the market, I think you are about to see one now. You all know that I am cautiously bearish most of the time but not tonight. Tonight, I am outright Bearish and am looking for a big drop right now.

We have talked about the market dropping into October for the last several months. We have said we didn’t really know what would cause the drop but we knew something would be blamed for the drop. So, the catalyst is a combination of several events like a rate hike sandwiched between two big hurricanes plus some other, not so prominent, news items.

Well, October is about a week away and the market is giving us a good signal that we should heed. There is so much complacency in the market but please don’t be complacent now. If you are in a 401(k) account, you have no tax consequences to releasing your assets from market exposure. If you are in taxable accounts, you have more difficult decisions to deal with, but we don’t think you should hesitate, even though you probably will.

If you have questions, simply put them out in the comment section. If you want to remain anonymous, you don’t even have to leave your name. We will try to answer any questions you might have.

In any event, protect yourself and trade well.

Dow Industrials: 10,378.03 -103.49 (well under 10,500)
BGEIX: 13.34 (our exit point, nice 37% trade)

Tuesday, September 20, 2005

The Fed Moves

Today, the Fed announced, as it has for the past 11 meetings (or was that innings—extra innings) that it was raising interest rates 25 bps and that it would continue to raise at a measured pace. The market put on a brave face right after the announcement but soon fell off to close decidedly negative on the day. The market opened strong but couldn’t keep it going to long after the announcement and then the market went down. We did notice that the volume was pretty chunky.

Today’s Fed news did manage to hit the precious metal complex. As we have been mentioning in the past several weeks, the HUI should find some resistance near the 240 level and it did. Yesterday’s opening was a classic from our perspective. The metals and the mining stocks saw a big pop on a Monday morning and then both fell all day long. Today after the interest rate pop they tanked even more much to our dismay. We were hoping to get out of our mining stock mutual fund closer to the 240 range but it was not to be. After trading over 246 early Monday, the HUI closed near 233 today with probably some more downside to come.

With that in mind, we are trading out of the BGEIX for now. Whatever we get for it on Wednesday will be our exit point. Since we got in near the low for the year at 9.71, we think we will have a fairly decent trade. We are not abandoning BGEIX because we fully intend to get back into it when conditions warrant it. It was a fun ride since May.

As for the stock market, we like our early August high call. Right now there appears to be confirmation that the market wants to go down. As you know, we are keeping a keen eye on the housing arena due to that being the heart of the credit expansion. Today we saw another crack appear in that housing starts were lower than expected. Yes, they were still very high but the rollover may be in place. We look for much lower stock prices into next month—at least.

Have a good day.

Dow Industrials: 10,481.52 -76.11 (below 10,500)
BGEIX: 12.90

Monday, September 19, 2005

Federal Reserve Tuesday

Well, Tuesday is a big day with the Fed making its petty little 25 bps bump in short term interest rates which gets even us a little lathered up. It used to be that Fed moves were done on a surprise basis but over the past year and a half they have been designed to not be a surprise. This semi-manipulation of rates serves to create an environment of “safety” to those who trade along the “curve”, giving everyone ample time to unwind from any difficult carry trade situations. Meanwhile, the financial system creates more and more credit and kind of ignores the Fed and its moves. The bond market has basically ignored rising inflation because…well we don’t know exactly but…the Fed has set up a no lose situation for bond traders by “fighting inflation” in their baby step fashion.

Enough ranting, but there really isn’t much to talk about tonight again as we wait for news on the Fed front tomorrow. I think the market wants to go down so maybe the move tomorrow will produce some down side action. Today’s downside action was attributed to the 7% spike in oil prices taking crude back up $4 to just over $67.

The precious metals were up strongly today but the HUI failed to go up in concert and our fund dropped a little today. The resistance at HUI 240 must be there. We will concentrate on this situation and keep you informed as to the near term direction. Ideally, we would see a modest pullback in prices and then find a good low to buy. But, we don’t always get what we want.

See you after the Fed’s bump. We advise caution after the bump because we might see a bit of volatility for a few hours of trading. We think the next move of consequence is down. Since the Dow is still in the 10,500’s we don’t see much upside. Hard to believe.

Dow Industrials: 10,557.63 -84.31
BGEIX: 13.18

PS If you are looking for Sunday evening's post, I accidentally wrote over it with this one. I guess the patting on the back was not supposed to have been done. Oh well. See you back here tomorrow.

Thursday, September 15, 2005

Promises Promises

There are several items in the news today, Bush’s speech on New Orleans tonight, CPI this morning, jobless claims among others. Which of these deserves some attention in a market blog? Well, the CPI, being up 0.5% or about 6% on an annual basis, is swept under the rug by referring to the “core” rate at 0.1% which was below expectations of 0.2%. The CPI was not lost on the bond market, however, as it dropped enough to notice even in this boring market. The jobless claims out this morning were well above expectations but that was discounted because the increase was due to Katrina.

That leaves us with the Bush speech tonight. I don’t really want to discuss what we should or should not do for New Orleans. I just listen to numbers like $200 billion and think it’s a big number. The market needs to assess how that kind of aid will affect the future direction it may take.

In this country we already have a sea of debt so I suppose another $200 billion can’t hurt too much but I think the market might not think that way. The catalyst to drive this market down could be something that is just enough to push it over, the proverbial straw that broke the camel’s back. The weight of borrowing this much money to pay for the relief effort in New Orleans is certainly something the bond market was not counting on just three weeks ago.

If the bond market falters during this “financing” period, or call it credit expansion, we will see the scenario mentioned in these pages many times. Interest rates go up and housing prices finally turn down. We have already seen the housing market kind of flatten out and we have been watching that high in the bond market set the first week of June. That high is still standing as a barrier to lower interest rates.

We can’t help but think about the big Fed meeting next week and what might be deliberated there. Would they consider pausing in their rate hikes due to the speech tonight and the incredible amount of money that will need to be borrowed to pay for the rebuilding of New Orleans? The inflection point may be upon us.

There are so many things falling into place for a drop in the stock market. Yesterday we saw the break in the NASDAQ up trend line. We can’t forget to mention Gold tonight since it pushed to a 17 year high during trading today, that on inflation expectations, imagine that. We have been calling for a lower market in October and feel that is almost inevitable with everything going on right now. We hope you are positioning your portfolio to sidestep the coming drop.

Have a great weekend.

Dow Industrials: 10,558.75 +13.85 (let’s see, yes it’s in the 10,500’s again)
BGEIX: 12.78 (nice, now up over 30%)

Wednesday, September 14, 2005

Uh Oh

Well, well, well, every dog has his day.  Today the stock market took a little shot, the NASDAQ a little more than the Dow, but both had negative days.  Not only that, the precious metals sector was on fire with the HUI up almost 5%.  Nice day indeed.  The NASDAQ had a very bad day breaking its up trend line solidly today.  This is not a bullish sign for the near term.  Our bearish stance, on tech and financials, was solidified greatly today.  But, like normal, the futures are up over night.  Go figure.

As speculated here last night, two big airlines declared bankruptcy today, one right after the other, Delta and Northwest.  I don’t follow DAL but have followed NWAC.  I live here in Apple Valley and their headquarters are in Eagan which is right next to us.  I have some friends that work there, both in the air and at their corporate headquarters in Eagan.  And, I fly NWA all the time.  Anyway, NWAC has not performed very well over the last several years, particularly after 9-11.  After peaking around 65 in the late 90’s, NWAC dropped to around 30 and then near 20 just before 9-11.  Then it dropped to about 10 before rallying to around 20.  From there it has mostly been on a down hill slide.  

Yesterday NWAC traded most of the early part of the day right around 3.25 before realizing that news on the bankruptcy was imminent. The stock traded 100 million shares on Tuesday and most of that in the last hour and a half.  Today it traded almost 80 million shares during the day and almost 15 million after the bell right after the news actually hit the wires.

The other news of the day was Retail Sales dropping 2.1%, the largest drop since November, 2001.  Does that date sound familiar, right after 9-11?  Of course, all of the talk was about how car sales were depressing the number.  This was Before Katrina and During the giant employee discount period.  But there was a bright shining moment if you take out car sales—why not take them out?  If you take cars out of the comparisons, retail sales were up 1.0% so not to worry.

But, an even better spin story is this(and I’m not using sarcasm here in case you can’t recognize when I am or not):  The Fed watches retail sales figures and Greenspan will probably be knitting his brow as to what to do with interest rates next week.  We have said for several months that the Fed would stop sometime and may even start to lower given a weak economy.

As Bill Fleckenstein says, the Fed runs monetary policy based on the applause meter.  If the stock market is ok, then monetary policy must be ok.  We still think they have to raise another quarter point next week when they meet but that may well be the last if we don’t start seeing stronger numbers from the economy.  We are going into the fall here and Christmas Holiday sales are key to the retail market.

We are somewhat impressed by the comeback in the precious metals sector today.  Yes, gold was up about $4 but the HUI was up over 10 which gives us some breathing room to the upside.  We do see a little resistance on the chart up around 240 and we need to think about lightening up on our positions when we hit that number.  The HUI is about 225 tonight so we haven’t got too far to go to get to 240.  We are watching this market very carefully.  (We are very happy that we picked this up near the low in May.)

Dow Industrials:  10,544.90  -52.54  (still in the 10,500’s, how long?)
BGEIX:  12.55 (new relative high, in at 9.70)

Tuesday, September 13, 2005

PPI for August, Up or Flat?

PPI for August jumped up 0.6%, after being up 1.0% in July, but the core rate was unchanged leading to a headline on CNN that read “Wholesale prices in check”.  Well, you know my attitude on this subject.  Inflation is running much higher than reported.

The other news today was Best Buy (BBY) getting clocked for about 10% after a disappointing outlook for future revenues.  And, tonight, Northwest Airlines, NWAC, along with Delta Airlines, DAL, are probably going to file for bankruptcy as early as Wednesday.  This story has intensified after the fuel prices rose in the wake of Katrina, but according to the PPI we don’t have any inflation problem.  There I go again.

Not much to report this evening except we did have a down day in the market today including the precious metals sector.  Right now we are just managing to keep one eye on this dull market.  As soon as we stop watching, it will move.  Catch 22.

Dow Industrials:  10,597.44  -85.50  (no surprise, we’re back in the 10,500’s)
BGEIX:   12.11

Monday, September 12, 2005

Monday Market, Up Slightly

Tonight we have very little new information about the direction of the market.  It was a Monday and it was fairly flat.  The bond market did take a little hit which should start to be noticed over in the stock market.  Complacency rules in the stock market.  

Next week we get another look at what the Fed has to say about interest rates and it should be sort of comical to see what they say.  They are obviously in an unusual position with wanting to raise rates and at the same time seeing the New Orleans situation.  My current guess is that the Fed will raise another quarter point when it meets next week.  What this will do to the market is anyone’s guess.  

The market wants so desperately to be bullish regardless of the news.  This is due to the heavy liquidity being thrown at the market in the wake of Katrina.  This is the same type of thing that happened right after 9-11.  This time it is in the midst of rate hikes but it still has the same reaction in the marketplace, rally in stocks.

We still think that we are pushing up against a fairly solid ceiling.  If we do break through, the break could be a short covering affair with a violent conclusion on the down side.  We don’t like that scenario but it is possible.  If it happens in the next week to match up with the Fed’s meeting, at least there will be a news event to mark a high.

I’m trying to be patient and pick a good solid top to short.  In the mean time, we are happy with our little gold mutual fund with was down a penny today after a new relative high on Friday.  We look for more upside in the near term.

Dow Industrials:  10,682.94  +4.38
BGEIX:  12.32

Sunday, September 11, 2005

Koizumi Rules (Sounds Cool)

The big news over the weekend was across the sea in Japan where the Japanese Prime Minister, Junichiro Koizumi, received broad support of his ideas for reform.  Last month the parliament turned down his plan to privatize the post office, which actually manages about 25% of the household savings.  Koizumi took his plan to the people who overwhelmingly voted to give him authority to make the changes he wants.  Koizumi is widely thought to be the one to overhaul the Japanese structural problems that have plagued the country for fifteen years.  

The Japanese stock market has reached a four year high and could be the best place to invest our money.  We have hoped that the world economies would follow the US economy down into the fall and then we could invest in the international market.  This particular event could mark an intermediate top in that market but we have been keen on the ETF, EWJ, for a couple of years.  We will take a harder look at it after we see a good break in the US market.

Speaking of the US market, stocks decided to stage another rally and break the Wednesday highs that we thought might hold.  Well, with the Japanese celebrating tonight the US futures are also partying a little, not much but a little.  It is Monday and the market likes to kick off the week with a little upside mostly that we want to sell into at this point.  

The mining stocks decided to participate in Friday’s rally and gave us a new relative high in that complex as measured by the HUI.  The HUI set a closing high in mid-August at 217.85 and Friday it closed at 220.23.  Meanwhile, the little gold fund, BGEIX, we follow made a new high as well at 12.33, after being at 12.13 for a mid-August high.  You may recall that we got you in at 9.71 on May 23 (check the archives for the Sunday evening post for May 22) for a gain of nearly 27%.  We continue to hold.

This looks to be an exciting week in the stock market as we have seen the Dow push back to its summer highs.  The resistance should hold due to the lack of solid momentum in the market as well as the NASDAQ indexes still quite a ways from their August highs.  There is significant overhead resistance here and we think it will hold.  With our forecast of much lower markets into October, we better see something in the way of downside pretty soon.  Have a good week of trading and come back here everyday for our latest thoughts on the market.

Dow Industrials:   10,678.56  +82.63
BGEIX:  12.33

Thursday, September 08, 2005

NFL Starts Play Tonight

And so it begins, the new season of the NFL.  I know, I know, this is a stock market blog but I do miss the fantasy league from the last few years.  Hope you all got the teams you were hoping for.  Good luck.

Ok, back to the stock market, which was struggling a bit today.  The Dow poked its head above the 10,600 mark yesterday but today it couldn’t hold it.  Yesterday could indeed be the high for the move as marked by the peak in the 5 day upside volume indicator.  After this big run, there is some reason to believe that the move is over and we are about to head down in earnest.  

The trouble is that the market seems to be in suspended animation.  We have the occasional day like the other day, up 140 points but for the most part the market is treading water and it has been doing it for the past 20 months.  

Tonight we heard from some of the tech companies, like INTC and TXN (Texas Instruments).  Both companies had positive things to say but INTC was down after the announcement and TXN was up.  AMD (Advanced Micro Devices) has been competing strongly against INTC for a while now and the last few days has seen its stock up nicely.  After trading in a fairly tight range between 20 and 21 for the last month and a half, it has had a nice pop the last three days closing at just over 23.  

Have a nice weekend and we’ll see you back here on Sunday evening, Monday morning to you.  

Dow Industrials:  10,595.93   -37.57  (back into the 10,500’s, surprise surprise)
BGEIX:  12.03  (back over 12)

Wednesday, September 07, 2005

Another Dull Day in Stock Land

Not much to report this evening due to the dull day we had again today.  One item of note is that FNM (Fannie Mae) made a multiyear low in trading today.  FNM is an important mortgage component in the housing arena.  The weak trading this past year in FNM portends some trouble in housing, just one more item to keep an eye on as we watch the credit expansion start to slow.  

One of the items we mentioned yesterday was that the market seems to have put Katrina behind it, at least as far as the negative side goes.  The market seemed to have the notion that the Fed was going to slow the increases in interest rates, so therefore, let’s buy ‘em.  This is happening even as bond prices are going down (increasing interest rates).

Today, Chicago’s Fed President Michael Moscow hinted that the Fed probably needs to continue to increase rates to combat inflation.  He seemed to think that there is not as much slack in the economy as there was last year and inflation pressures are mounting.  I guess they don’t really think housing inflation counts.  The news is affecting the futures in overnight trading with the futures down but just by a little.

On a technical note, our favorite topping indicator, the 5 day upside volume, has pushed to an overbought high today.  This could represent a high in the market all by itself.  We have been looking for a high to short into this week, one that falls short of the early August highs.  I would say today fits that bill.

Dow Industrials:  10,633.50   +44.26   (don’t look for this over 10,500 to continue)
BGEIX:  11.80

Tuesday, September 06, 2005

Not So Much Trouble Today

The stock market showed some strength today as we get September off to a good start for the bulls.  Today’s rally in the Dow pushed right up through the 200 day and 50 day SMA’s.  Last week we said that the market has been so flat recently that there really isn’t much movement in either direction but the drop below 10,500 could be meaningful.  Well, tonight we are back above that 10,500 and looking straight at the 10,600.

We have the late July, early August highs around 10,700 providing some overhead supply, resistance.  But, the key facts to look at for today are that this is a typical retracement of the down move we have seen since the mid-summer highs.  It’s based on low volume, at least today, and looks like an ending type move on the sheer price move of 141 points in the Dow.  These are headline, head turning numbers that the public sees in conjunction with the energy prices going down a bit.  Today’s headline on CNN was “A Well-Oiled Rally” just to give you an example.

We said last week that we wanted to wait until this week to get short and we like a day like today to do just that.  There are no shortages of “reasons” for the market to keep going up so we ask “How can it?”  We still engage in contrary thinking in case you were wondering.

The conclusion the market has come to is that Katrina and falling energy prices allow or force the Fed to stop raising interest rates.  The bond market didn’t agree today because it dropped, with interest rates moving up somewhat.  Don’t forget that those early June highs in the bond market are still providing some strong resistance to bonds.  

Precious metals actually like an environment of low or negative real interest rates.  This is the situation that could present itself if the Fed does stop raising rates and inflation continues to climb.  So, you have some pretty good choices, either buy mining stocks or silver or sell stocks (Short—by utilizing the RYDEX funds where possible).

We look for the stock market to “hit the wall” tomorrow and maybe put up some stronger volume as supply again meets demand.

Dow Industrials:  10,589.24    +141.87    (10,500  boring)
BGEIX:  11.83

Monday, September 05, 2005

Happy New Year

Welcome to the start of a new year of trading. We are so looking forward to trading this market over the next year as many good opportunities are now presenting themselves and we should be in a good position to take advantage of them.

Last Friday the jobs report showed a modest increase of 169k new jobs created. At the same time the unemployment rate dropped to 4.9%. I don’t think that the New Orleans area will contribute good numbers to employment over the next few months. Who knows how the market thinks about the economic and financial consequences of Katrina. As I write this the bulls are driving up the futures in overnight trading so at least these traders think the worst is behind us as far as Katrina is concerned.

We take a far different view and have the opinion that the market will struggle over the next few months. Any distraction the Fed may have during this time will be over shadowed by the giant shrinking credit machine. We have repeatedly stated that the reduction in credit will push the market down due to housing cooling. More as it develops.

The precious metals arena has again become the focus for the Wednesday Update as we see a significant low being put in last week. Friday’s commitment of traders’ report showed some bullish accumulation by the commercials in both silver and gold corresponding very well with the bounce we saw in the HUI last week. A similar move happened over in the dollar except in the other direction. The dollar has broken down in the past several days and has blown through support. We mentioned earlier in the year that the dollar would go at least as high as the high 80’s and it seems to have peaked near 90.5 and now is back into the mid 80’s. Everything looks good for the precious metals fundamentally and technically speaking. (For more info please read the True Contrarian on the link to the left.)

Our position is to sell stocks into any rallies that develop and to buy precious metals. We should see some good performance from both of those strategies over the intermediate term. The stock market is in serious trouble over the short term.

Dow Industrials: 10,447.37 -12.26
BGEIX: 11.92

Thursday, September 01, 2005

September has Slow Start

September 1st didn’t provide much in the way of bullish moves for the stock market, well, except for precious metals, more about that below. For stocks, the day’s action was a bit volatile but with a downward bias. Volume was again stronger than we’ve seen this month but not as strong as yesterday. With this being the stronger part of the month, we haven’t seen a big push up.

You may think we have been discounting Katrina in this discussion. Well, for some reason the market doesn’t seem to think that Katrina’s aftermath is much to worry about. Yes, gas prices are up but the day to day life is going on in the rest of the world. Relief efforts are slowly coming to the New Orleans region but as it relates to the market, there doesn’t really seem to be any visible trouble. Stocks have managed to shrug off $70 oil so what’s $3 gas, apparently not much to the market.

We have been sort of waiting for next week before initiating any additional shorts but this market seems very weak even with the chunky volume of the last two days. It almost looks like there has been a bit of easing in the somewhat oversold situation the market has found itself in the last week or so.

The place that bothers us most is the mining stocks. We saw the support near 200 for the HUI index and now are looking back with dismay that we didn’t add to our position during that dip. On Tuesday the HUI closed under 200 at 198.79 and today it closed at 213.43 about a seven percent move in two days. PAAS, our silver mining stock traded as low as 14.87 on Tuesday but closed today at 16.37 for a 10 percent move if you could have caught the low, not likely. We saw the BGEIX gold mutual fund print an 11.19 on Tuesday evening this week and tonight it closed at 11.90.

This move in the HUI correlates to a steep drop in the dollar the last two days. This trend should be watched closely as it should give some clues to what the bond market will do. In the convoluted way that the market thinks these days, the dollar's logic goes something like this. With Katrina, there is some feeling that the Fed will have to stop raising rates. What was the headline on CNN, "Will Katrina make Greenspan pause?" I didn't even read the article but this is the type of thing that makes Katrina bullish in the stock market--the logic lacks a little if you are truly looking at Katrina for what she is, a deadly storm with long term negative implications for the economy and the country as a whole.

Well, tonight is the last Post for the week. We will post something Monday evening when we return from the long weekend. We trust your weekend holds something special for you. Have a good one and we’ll be back next week.

By the way, Happy New Year, for those of you who know my thoughts on the start of the year being the Labor Day weekend. It has to do with getting ready for a new school year. It seems this year is the first year in a long time that there hasn’t been someone in our house going back to school in the fall.

Dow Industrials: 10,459.63 - 21.97 (continues below 10,500)
BGEIX: 11.90