A Big Week for Earnings

Monday starts a new week in the market and there is a lot of optimism about the future course of the market. Many have suggested that the lows are now in and that we can get our traditional year end rally starting any day now. Monday’s are good days to be bullish the stock market due to the fresh start approach. People take a look at the information on the weekends and on Monday decide were to put their money to work.

Here at the Wednesday Update, we think that any rally should be sold. We have had an oversold market and now we have a low point that may provide some support in the Dow. We do not think any near term rally will develop into something serious on the upside but we will reserve judgment. We do not want to be too stubborn if the market does decide it wants to rally a little.

In fact, we believe that if a rally doesn’t come soon, there will be acceleration to the downside especially in technology shares, which we follow carefully. We think any rally in these shares is a good selling opportunity. GOOG now sports near a $100 billion market value. That is a big number and we continue to recommend selling this stock.

On Friday, GOOG led the NASDAQ to a good sized gain while CATerpillar, a leader in this market over the past three years. CAT traded around 17 in late 2002 and just last week traded near 60, a mere quadruple during that time. Friday it disappointed on earnings and dropped ten percent to under 48.92. As these leaders keep silently dropping, the market is making big plans to go down while everyone is still bullish.

Lots more earnings to be announced this coming week so keep your eyes open for developments. We don’t look for much upside but are aware that spikes are a fact of bear markets. There is definitely too much optimism for a broad based rally. These spikes are usually short covering or day trader momentum chasers. I don’t know that for sure but it is very likely.

Here is our position on markets that we are involved with:

Stock market: Short most, if not all, sectors. Leadership is fading and we look for a sharp decline before Thanksgiving.

Gold: We think gold and its shares have peaked for the near term. We may get another opportunity for a long position before year end. We may see a bit of a bounce out of the lows set last week but another drop is likely. We will wait for a good opportunity.

Bonds: We are long the longer dated Treasuries, we think corporate spreads to Treasuries will widen so we would avoid corporates. The rally phase may not last too long but we see a good bottom at last week’s lows.

Dow Industrials: 10,215.22 -65.88
RYVNX: 21.66
TLT: 91.43