Wednesday, November 30, 2005

Gold's New Margin Requirements

The end of the month is upon us and normally it would provide some market strength.  With the huge November rally behind us, that normal month end strength may not be as prominent as the Dow Industrials demonstrated today, dropping about 80 points.  With our stance now being that the Dow hit some firm resistance in that 10,950 area several days running, we didn’t think we would see much strength anyway.  

Normally the last day of the month would be a good time to buy and this month we have seen some good news out of the economic numbers over the past few days.  Today’s news was that the latest revision of third quarter GDP showed an improvement to 4.3% from the previously estimated 3.8%.  Ah, the magic of numbers.  Every time the GDP number comes out, I think about the understated inflation factor.  We have discussed on several occasions the beauty of keeping the inflation numbers down.  The two big reasons are to show better GDP growth and the other to hold down the cost of the Social Security program.  It’s a magic trick.  Sorry, truth in advertising doesn’t apply to government numbers.

The other story that I wanted to mention is about gold.  Gold briefly traded above $500 this week but today dropped about $7.  The mere fact that gold traded at $500 is enough reason for a pullback but there is more.  First, we think that the price movement of the mining stocks precedes the price of the metal itself.  The HUI index has struggled during this recent spurt higher in gold.  That is a warning signal.  

Second, the powers that be don’t like gold as an investment due to the very obvious signal a higher gold price means, lower currency values against the ultimate currency, gold.  This week a new margin level was instituted which makes it more expensive to hold gold futures contracts.  On the surface it looks like a very legitimate move because margin requirements are ridiculously low for most commodities and gold is no exception.

Using the price of $500 for gold and the precious margin requirement, you can buy one futures contract that controls 100 ounces of gold, $50,000 worth, for a mere $1,350, not bad.  The new rules impose a much higher $2,025, which doesn’t seem all that much either, but it is about 50% higher.  This can, by itself, cause the price of gold to drop.  Of course, third is the notion that inflation is under control in this country, right.

Another thing that could be holding gold back a little is the extreme bullishness in the gold market.  As we always say, these are contrarian indicators and we are bearish on gold and its shares.  Today’s down move was more than confirmed by the gold mining stocks drop with the HUI dropping over $7.

In the middle of all the rest is the Fed sitting back and pushing rates up with another one coming in mid-December, the 13th to be exact.  Gold doesn’t really like interest rates moving up because it makes owning the currency that makes babies (interest on your cash or bonds) look better than something that doesn’t have babies.  

The last two things we want to mention are the jobs report that is coming on Friday and tomorrow’s report from the ISM on manufacturing. The jobs report hasn’t seen much play over the past several months and I think it likely that it won’t this month either.  But, you never know since it has had so much influence in years past.  As of tonight, the estimate for jobs is about 220K so you can judge the number for yourself when it comes out on Friday.  The question is what will happen if the number is smaller than that?  Will the market rally due to the Fed’s response?  It is hard to tell but we think the market needs to retrace, at least retrace, some of the gains of the past six weeks so we might as well have the jobs report for a catalyst.

The ISM manufacturing report could have some bearing on the trading tomorrow but I think it is likely the market is waiting until Friday’s uneventful jobs report.  Again, this report has been a market mover in the past but tomorrow…

We believe that market topped in the past week near the 10,950 range and it can trade back up to there if it likes but we will mark that level as our top.  If the market can some how break through that, we would probably need to back off for a few weeks.  We see the market as very overbought even after today’s trading.  Be careful and be selling strength.

I promised to give some more information on Erick’s question the other day but haven’t had room to do so the last two days—we’ll try again tomorrow.  Sorry.

Dow Industrials:  10,802.87  -82.29  (uh oh)
RYVNX:  19.03
TLT:  90.00
BGEIX:  13.68  

Tuesday, November 29, 2005

Bullish Trifecta?

Today’s onslaught of good news caught the bulls a little by surprise.  This was the trifecta of good news that normally would have caused some major upside fireworks, not so today.  Yes, the market did open up on the day with, as an example, the NASDAQ Comp jumping about 15 points an hour into the session.  But, the action fizzled with the Comp dropping a devilish 6.66 to close on the low for the day.

The action in the Comp the last few days has been very weak in the face of bullish optimism for that fantasy Santa rally, or is it the year end rally?  Now the bulls are saying we needed a nice refreshing pullback so we can steam forward into the end of the year.  Today’s news was met with selling and what was the cause?  Well, you know that if the economy is doing well, the Fed will need to continue raising rates, so we better sell some stocks, twisted logic.

You probably have already heard the news but here it is again.  First, the durable goods orders were up much more than expected but I was not impressed with the liberties that the media took today.  The durable goods were expected to come in up 1.5 and the reported number was 3.4.  The article describing this number said durable goods were up almost 3 times the expected amount.  I guess technically they are correct, almost 3 is not the same as 3 but it wasn’t even 2 ½ times as much.  

Second, the new home sales were up, climbing a big 13% from September to October.  The numbers under the report seemed a bit different than that plus the report is seasonally adjusted so any number of things could be in there.  The report on this that will appear in Wednesday’s WSJ says that “many analysts questioned the report’s reliability”.  Following that, the article says that inventories of unsold homes grew. Apparently, home sales in the West region grew about 50% from 311K to 457K, yeah, right.  (Maybe I should say they just about doubled, but that trick has already been done once today.)  This report is on the heels of the report on Monday that indicated existing home sales dropped 2.7%.  In any event, the bond market took a beating today.

The last report was on consumer confidence and that was up a record amount from the report last month after the hurricanes and the huge gas increases.  Now that gas prices have come down, people must be feeling better about their own situations.  

With the Dow jumping early this morning to touch the 10,950 level for the fourth day in a row, we think the market is struggling to stay up here.  The other indexes we follow have not even tried to stay up.  The Dow has now been trying to test the high back in March.  So far, the market has failed to push the Industrials above the mark set in March.  Plus, the market continues to be overbought, use caution.

Dow Industrials:  10,888.16   -2.56
RYVNX:   18.92
TLT:  90.10  (ouch)
BGEIX:  14.09

Monday, November 28, 2005

Turn Around Monday?

When we wrote early Monday that the “morning trading could be the high we have been looking for in this rally” we didn’t think it would last a half a minute.  The Dow opened up about 25 points and decided to set that as the high mark of the day.  This Monday morning top has the potential to be the end of the top that has been forming over the past few days of trading.  Monday the bond market picked up some strength and took in some of the money that was leaving the stock market.  However you choose to look at the action on Monday, you really can’t be that bullish, many are.

In the news today, Merck said it would be laying off 11% of its workforce or about 7,000 people.  The news was not good for investors as they apparently were looking for “fresh ideas” not just mere layoffs.  The stock decided to drop nearly 5% on the news.  The price is well off its lows of the year but this stock has not had good results especially since the news of VIOXX hit the wires.  Back in late 2000, the stock traded around 90 and today closed just under 30.  No, there wasn’t a three for one split, the stock value dropped by 2/3’s in the past five years, another poster child for taking profits in this current market.  

The biggest news today, as we see it, was the existing home sales which showed a decline which was more than expected.  More importantly, the inventory of homes for sale rose to a very high 4.8 months giving buyers a little less motivation to buy at the list price.  This is what is known as a buyers’ market.  So, while median prices have risen 16.6% over the past year, sales have dwindled a bit with more weakness expected.  Housing slowing down is the event that we think will be the driving force in the next big recession and market decline.  We have seen various signs of the housing juggernaut slowing.  

Erick raised some questions out in the comments section and I will try to answer them more fully Tuesday evening but wanted to leave one thought before a close this post:  The consumer here will have trouble sustaining the current level of demand for foreign goods, other than oil, and this alone could cause a global recession.  As you mentioned, the US is the bully in the lunchroom.  More tomorrow…

Dow Industrials:  10,890.72   -40.90  (so far, missed the closing high by 9 points)
RYVNX:  18.75
TLT:   90.96
BGEIX:    14.15  

Shopping Seems Strong

The stock market is looking to continue gains from the past week as we have seen strength, without a lot of power.  The Dow Industrials have pushed up to the annual highs we saw in early March just over 10,900.  The weekend shopping is said to be up considerably from last year at least among preliminary reports so the market has no worries: the consumer seems to be impervious.  The Wall Street Journal reports that shoppers are as “reliable as ever”.  

As we assess the stock market as well as the precious metals, we see them being more over bought than normal with bullishness running high, marks that bring the contrarian out in us.  We see historic opportunities for people to sell here.  There are so many pitfalls in trading the stock market but one of the worst is to get bullish when the party is almost over.  

We remind you that we are just now seeing the Dow match its high of earlier this year.  This is not a sign of a healthy market.  People are bullish without prices actually going up.  We aren’t sure but Monday morning trading could be the high we have been looking for in this rally.  The overnight markets are running high in anticipation of a good up opening but we know from experience that this is not such a good thing.  Monday’s are normally stronger than other days of the week but we have seen prices up for about week in a row without a pause.

We are posting on Monday morning for a change and we can see that the party is certainly going strong for the opening.  We are near the end of the month, a typically stronger time for the market.  These are treacherous times to be buying and we recommend taking advantage of the high prices to sell.  Be careful.

Dow Industrials:  10,931.62   +15.53
RYVNX:   18.39
TLT:   90.51
BGEIX:   14.08

Tuesday, November 22, 2005

Is the Fed Done With Hikes?

Seeing the Fed minutes caused a big up move in the middle of the day.  The Fed seems determined to slow these rate hikes down based on the minutes that were released today.  In the grand scheme of things, we think that the rally in stocks over the past several weeks to have been related to this ultimate decision to stop the rate hikes soon.  The market doesn’t really have a big problem with rates where they are because they are still very low.  Longer term rates have been relatively stable when compared to the short end of the curve where the Fed has some juice.  

The precious metals have also seemed to be anticipating a slowing the interest hikes.  This is for a much more sinister reason, higher inflation.  The precious metals can take flight in the current situation because rates are Too low for the current rate of inflation so precious metals think inflation will continue to percolate.  

Today’s action in the stock market seems too perfect.  The momentum indicators have been weak relative the last highs so the market is certainly overbought, and that includes one of our favorite indicators, the 5 day upside volume, which is over 1,000,000 shares again.  The number of stocks trading at new annual lows has been persistently high during this period too while the number of new highs has been subdued.  Today’s volume was decent but not great.  

We are leaving you with a few days to forget about the market.  Tomorrow will be nothing short of boring and Friday will be a quiet day with light volume due to the shortened trading session.  We don’t plan to post until Sunday evening unless something very unusual occurs tomorrow.  

I bid you a Happy Thanksgiving however you decide to spend it.  Those of you who still read these posts, I am thankful you do.  

Dow Industrials:10,871.43  +51.15   (Unbelievble)
RYVNX:  18.52
TLT:  90.53
BGEIX:  14.09  

Monday, November 21, 2005

Dow in the Black for 2006

So, the Dow is in positive territory for the year as of today.  Now, I get all the bullishness.  Or maybe I don’t get it.  It appears that the market wants to edge its way up to get the Dow to a new yearly high but the excitement of just eking out a positive return for the year today just leaves me cold.  

You have been given a good opportunity to sell into this excessive up move so I hope you take the opportunity to do just that.  With the end of the year approaching, there is hardly a bear in sight.  It reminds me of ‘Twas the Night Before Christmas, no one was stirring, not even a mouse, no bears either, they’re all in hibernation.  I know it doesn’t rhyme.

Out in the comments, Erick has left us another question/statement that I’d like to comment on.  He asks if the Global economy has entered a period of market diversity that squeezes out the idea of recession.

Our answer is that the US as a whole has paid for no recession by borrowing money.  The account balance with the world is extremely negative and that fact alone has helped the rest of the world stay out of recession.  We keep buying foreign goods and they have kept buying our debt with the money we spend.  The rest of the world is more than willing to take our money and give us their goods, especially China.  We, here in this country, have been borrowing money to support our spending habits and have not let the economy suffer, just our balance sheets.  I say that in terms of having moved into home equity lines of credit or simply refinancing to get more money.  As housing prices have advanced that has not been a problem; but, now that housing prices have come in a little, there is a danger that the consumer may pull in their horns.  Christmas is right around the corner and the consumers will show their hand.  The holiday shopping spree may still be intact but the heating bills are coming to put a dent in the consumer’s spending habits.  I say, the day of the soft landing here in this country is probably behind us, 2006 will be a very challenging year.  (Erick, sounds like you had a nice trip including all the biking.)

Dow Industrials:  10,820.28   +53.95
RYVNX:  18.69
TLT:  90.41
BGEIX:  14.02  (gold stocks are at yearly highs too)

Sunday, November 20, 2005

Short We(a)k Ahead

The market has a four day trading week this week and Friday should be a light trading day.  We don’t have any reason to change our stance on the market at this time.  Our momentum indicators have just failed to confirm the new highs created in the market late last week, giving us added information to stay the course.  The bullish sentiment being exhibited in the market place is the best indicator for us contrarians.  

Right now we see the picture unfolding quite like we anticipated earlier this year.  The bond market did push rates up somewhat and that is being blamed for the current housing dent that is occurring.  So, as rates come down, they say, housing will pick back up.  Actually, the media is starting to present somewhat bearish comments on housing, mostly due to the up tick in rates.  

Here’s what we see:  Gold is in the process of peaking, the stock market is peaking and not confirming the highs, the dollar is peaking but Treasury bonds are firming up, maybe signaling a recession coming up right around the corner.  We don’t like predicting recessions but we like to anticipate what the market wants to do.  We have been on the short side since early October and recently that call seems to have some holes in it.  On the other hand, the market is getting tired.

We note that last week was options expiration which naturally contributes to a somewhat unpredictable week.  We’re not trying to rationalize our position, just making statements about options expiration.  The artificial highs set late last week should be retraced starting on Monday.  Normally, Mondays are strong days but this week may be different.  

There are very few asset classes that make reasonable sense to be in and we remain with the mantra that “cash is King”.  We recommend staying away from the market and gold, too.  The only place to be long right now in this country is the Treasury bond market.  We have been sitting in the TLT’s for about a month and have seen no net change in the value of our asset.  This is a good thing since we saw a drop of about 3% going into last week, being back to even feels much better.  

Dow Industrials:   10,766.33  +46.11  (looks like a big number)
RYVNX:  18.82
TLT:   90.14
BGEIX:  13.59

Thursday, November 17, 2005

Just Another New High in NASDAQ Comp

The NASDAQ Comp put in a new high for the year and for several years on Thursday.  I concur with Erick’s comments yesterday.  The market really hasn’t done that much this year and the new high today has now brought the NASDAQ Comp to 2.5% gain for the year.  Being in cash for the year would have netted you 4% probably.  This is very exciting and all but the move is only a short term move.  

The market is not a very good place to have your money due to the lack of a definitive move.  We have been short from the first of October and thought we had picked the best place to do that but the action since the middle of October has negated all of it.

The new high in the Comp comes at a time when the participants seem very bullish so I’m confused as to why the market is accommodating the bulls.  We have obviously been on the wrong side of this move since October and don’t like it.  Every day I think the market has had enough upside and then some more money comes in to keep it going up a little.  

The fact that the Comp hit a new high for the year should be bullish but the momentum indicators just do not confirm this.  Even the volume was not confirming the up move on Thursday.  Yes, upside volume was strong but it wasn’t blow out strong.  If the market can’t mount a decent burst in the morning, we would say that today’s rally was a good time to unload some stocks.  

Writing a stock market post is a difficult thing due to the tremendous urge to follow your emotions.  We constantly talk about selling relative strength and buying relative weakness.  So, we will talk about it again.  This move is just about over and only needs a little push to send the market going in the opposite direction.  Just because it has gone up does not mean it will continue.  If you have missed the move from the lows of October, then you probably don’t have much left on this move and you shouldn’t now try to get in.  

I bring this October low up just because back then there was some fear and nobody really felt confident that prices were going to go back up ever.  Today, there is great confidence that the market can’t really go down before the end of the year… You make the call, because you always do anyway.  I’m just here to provide a little contrary thinking.

In the news, HPQ reported a 62% drop in profit but raised its forecast for this quarter.  Revenues were up but the company said it had one time charges that brought earnings down.  Hewlett Packard was up in after hours trading.

GOOG managed to push over $400 on Thursday in what can only be described as speculative trading.  The stock has now surpassed Coca-Cola, CSCO, and Time Warner in market value and sits on a 90 PE ratio.  Yes, its forward PE ratio is near 50 but that is yet to be seen and carries only a little weight with us.  Congrats to those who bought this stock at the beginning of the year near $200.  I feel sorry for those that have paid $400.  The believers in this stock are now pushing up their price targets.  Does anyone remember the 1999 to 2000 market?

The GAP experienced a gap in earnings as they fell 20%.  Disney saw its net drop 27%.  But, the big news as we read it is Housing starts which dropped about 6%.

The housing juggernaut is still mighty big but the air is starting to come out of the market.  Whether due to the high prices, higher heating costs, higher interest rates or just the economy, we are starting to see various signs of weakness.  This should lead to a downturn in the stock market as well.  We remain bearish tonight, oh really.

Dow Industrials:  10,720.22  +45.46
RYVNX:  18.89
TLT: 90.56  (one bright spot)
BGEIX:  13.61  (new high for the year here)

Wednesday, November 16, 2005

All Markets Up Except Stocks

The stock market has spent the last three days working off the overbought condition it found itself in last week.  One of the interesting things about this is the complete absence of bearish press, except here, of course.  After last week’s high, we have seen a lot of complacency again as to the Santa Claus rally.  When stock owners decide selling can wait, usually the market has just rallied and given them a good chance to sell.  When they normally want to sell is into fear, not strength.

The cross currents in today’s markets were fascinating if you pay any attention to the markets we follow.  The inflation data was mild and the dollar went crazy at the open, the bond market was up and gold was soaring.  Meanwhile the stock market was meandering all day long, truly an odd combination of events.  The Dow squirted ahead about 30 points at the open and then slowly leaked all day to end down about 11.  

The CPI reported out at more than expected but not much out of the ordinary and since the market doesn’t seem to care about inflation, there was no noticeable reaction.  Do recall that gold was up and up big at $10 an ounce, some of which happened before the CPI was released.  The other big move today was in natural gas, which spiked about 7%.  The price of natural gas had traded as high as 15 right around the hurricanes and then traded down to about 11.  Today’s spike took it back up over 12.  You may not recall but the price of natural gas spiked to 8 last November so we are at least 50% higher than last year’s high.  

Some news we didn’t have room for last night was the price of GM which made another multiyear low today.  Last Friday, GM traded around 24.5 but has dropped the last three days and today closed at 21.29, about a 15% drop.  I guess we should consider GM a finance company since about all it does is loan money to buy cars.  So, its counterpart in the mortgage finance business, FNM, Fannie Mae, has not been doing too well the past couple of days either.  FNM is not now punching into multiyear lows but is very close to doing just that.  For its part, FNM was only down about 4% the last couple of days, but in a dull market, a big mover tends to get noticed.

Finally, AMAT announced tonight and said its revenues were down about 22% from last year but somewhat above what was expected.  Profits, on the other hand, were down nearly 50% from last year.  The price of AMAT has recently been very close to what it’s been for the past 18 months, in the 16-18 range.  After the news, the stock jumped a bit over 18 but didn’t hold it and closed down about 50 cents at 17.24.

In other news, the Senate approved a pension bill that would raise premiums paid to the PBGC, Pension Benefit Guaranty Corporation.  This is the organization that tries to protect the defined benefit pension plans of failed corporations.  These plans have some latitude in their assumptions of future returns and can be seriously under funded in a low interest rate environment.  Today’s bill is designed to give the airlines a chance to fully fund their plans over a 20 year period.  That seems mighty aggressive given that they are in bankruptcy and probably will be for a while.

Thursday we get to find out about October housing starts.  We are anxious to hear what this is due to our interest in the real estate market in terms of the stock market.

The next week we are going to modify the post schedule due to the Thanksgiving holiday.  Sunday, Monday, and Tuesday will be normal posts and then probably not another one until the Sunday after Thanksgiving unless the market action requires it.

Dow Industrials:  10,674.76  -11.68
RYVNX:   19.46
TLT:   90.34 (finally back above our purchase price)
BGEIX:  13.30  ( we exited at 13.34 on 9-21)

Tuesday, November 15, 2005

Retail Sales, Up or Down?

Tuesday showed the market’s inability to sustain a rally. The volume was stronger than we’ve seen over the past two sessions but not huge. What was interesting was the number of 52 week lows on the NYSE, 197, the highest since the 27th of October when they registered 218. The thing is that the market was considerably lower then. The little telltale signs that things aren’t what they seem on the surface.

We need to take a paragraph to report on the two articles that caught our eye the last two days. One was in the WSJ and the other on CNN, Both were about the real estate market slowing down a bit. CNN’s headline was “Outlook sours for real estate” and the WSJ’s article was “Housing Market Shows Further Signs of Cooling”. You can read both of them yourself but the articles are very much in line with our thinking over the past several months—real estate is turning over. We strongly believe that the real estate market going down will drive the stock market down. You know that there is a lot of talk in those articles about the slowing, not the turning, of real estate. Many are predicting continued gains in prices next year but just not as much as the last four years. Please, what do they really know?

Retail sales fell 0.1% in October after rising 0.3% in September. The headline was bullish, like the media wants to be. The headline in Wednesday’s WSJ reads “Minus Autos, Retail Sales Are Solid”. By extracting the auto and gasoline sales out, retail sales managed to increase 1.1%. Seems every time we have to report a bad number, we can take something out to make it look just right. It’s a Goldilocks situation.

The same holds true for the PPI announcement (and probably the CPI number on Wednesday). The PPI rose 0.7% last month after 1.9% in September and 0.6% in August for a three month additive total of 3.2%, but, not to worry, because the core PPI dropped 0.3% perfectly offsetting September’s rise of 0.3%. Goldilocks again.

One of the big news items was that Johnson and Johnson (JNJ) seems to have gotten it right this time in their buyout of Guidant (GDT). The news was that JNJ got a 15% cheaper price this time due to the drop in the price of GDT since their initial bid. I only point this out because the big market rally (sarcasm) didn’t take GDT up with it. Many stocks rallied strongly in 2003, like GDT, but since the beginning of 2004 we have mostly stagnant prices in many sectors.

In other news, AMZN will be inducted into the SP500 replacing AT&T which is being purchased by SBC Communications. The company jumped 5% on the news. The SP500 companies must have a market cap of $4 billion and post four straight quarters of positive earnings. The four straight quarters of positive earnings has kept AMZN out of the index in the past, very strong company (you guessed it, sarcasm). It’s these types of moves by the SP500 that tend to make being in an index fund based on that index a little questionable.

There were some interesting developments in the Retail sector. Monday evening Target Corp, TGT, based here in Minneapolis, said November sales would fall short of forecast and last week they said they expected slowing growth in the fourth quarter. TGT fell over 7% on the news in Tuesday’s trading. Other retailers followed suit as Best Buy, BBY, fell about 5% Tuesday as well. One of the catalysts for the sell off is the behemoth in retail, Walmart, WMT, who announced some positive forecasts for Holiday sales. So, WMT has run up since the middle of September when it was at 42 to near 50 Monday. Don’t forget it traded above 50 and it was 54 in January and over 60 in early 2004. Again, very bullish. (yes, sarcasm again)

Well, Wednesday we get the CPI and the contortion of numbers continues. The news will be muffled and the markets probably won’t pay any attention to it.

I apologize for the length of the Post this evening but there were just so many interesting things and I still didn’t get to report on all of them.

Dow Industrials: 10,686.44 -10.73 (NASDAQ COMP was down 14.21)
RYVNX: 19.63
TLT: 89.40
BGEIX: 12.68

Monday, November 14, 2005

Flat Line Stock Market

Normally, Monday’s show stock market strength but today we saw only dullness.  The New York Stock Exchange volume turned in day much like Friday with fewer than 1.4 billion shares traded.  For its part, the Dow Industrials traded in a narrow 30 point range for the day.  We like to find something out about the market everyday but the last two days have shown very little in the way of new things.  The market has the capability to turn down on a moment’s notice and we need to be aware of the slightest change.  

The dollar continued its recovery today as it made a new relative high just over 92.  The dollar index has fallen steadily from 2001 around 120 to its low late last year around 80.  The recent corrective rally has taken the greenback up about 30%.  The dollar may try a little more rally but in the end it will fail to get even close to that 120 of four years ago.  With the massive twin deficits, we expect tough sledding (Santa Claus reference for you) as the dollar runs into some trouble right about now.  

With the continued dollar strength, you would think that gold would be showing signs of weakness but it has been rather strong the last few weeks.  We don’t expect these asset classes to move together for very long but we do think a gold correction is in the making.  We continue to be patient; we’ve already had a good trade in this sector this year and we don’t want to be greedy.

Maybe we will get some information out of the stock market tomorrow.  We will get the PPI, producer price index, tomorrow as well as retail sales.  The sales number will get some attention tomorrow.  I don’t think anyone really believes the inflation numbers so no one gets too excited about them.  But, we will see…

Dow Industrials:  10,697.17  +11.13  (getting close to 10,700)
RYVNX:  19.46
TLT:  88.82  (maybe we are seeing a bottom forming)
BGEIX:  12.86

Sunday, November 13, 2005

Over Bought Stock Market

Friday’s trading gave us little in the way of new information but the stock market remains overbought and should be avoided.  The complacency and bullishness is noteworthy.  With the major indexes, Dow Industrials, SP500 and the NASDAQ COMP, all below their highs for the year, the bullishness seems a bit unfounded. The media has created a bull market going into the end of the year.  Is that even possible?  Since when did the media become the experts on the stock market?  

Please measure your exposure to the market and determine if it is the appropriate level.  We have the worst of both worlds going on here.  The media is convincing people that they better get on this Santa Claus bus before it’s too late and people are doing it.  We believe this is the worst time to be exposed to stock market risk.

The biggest reason to take shelter is that market leadership has disappeared. Yes, recently some of the financial stocks have stepped up a little bit but not all.  The big leaders, the oil and housing sectors, have disappeared.  

Speaking of market leadership, Erick had pointed out an article in the WSJ that indicated there were some value stocks that we might be able to pay some attention to given a good opportunity might arise.  I looked at those stocks and found one, JEF, an investment brokerage company, to be of some interest.  The problem is that it has jumped a bit, along with several other brokerage firms and we should look for a better price at this point.  I believe that better prices are just around the corner for many stocks.

I’m not going to mention the other stocks because they didn’t look as interesting until their price gets a little higher if you can believe that.  I think they have run into some resistance here at these levels and could also be purchased with a decent pullback.  We will continue to watch them for a while as we would like to be prepared for some good stocks if we ever could find a good low to trade from.

There are a couple of things to watch for this week:  Bernanke is scheduled to appear before the Senate confirmation hearings, both the CPI and the PPI come out this week, as well as Retail Sales.  Since nobody eats or uses energy, the CPI and PPI are only considered without them (how preposterous) and they are both expected to rise 0.2%.

I think you should take a quick look at the True Contrarian link to the left.  He updated on Sunday evening and provides some food for thought for the current environment.  We both think the gold complex is too pricey but his thoughts on the stock market are worth reading.  

Dow Industrials:  10,686.04   +45.94
RYVNX:  19.42
TLT:  89.49  (bond market was closed on Friday)
BGEIX:  12.96

Thursday, November 10, 2005

INTC to the Rescue

The market enjoyed a big rally today pushing the Dow Industrials above the 10,600 mark and moving the other major indexes up near their highs for the year.  Notice I said “near their highs for the year”, not to new highs for the year.  It seems there is exceptional bullishness backed up only by stocks nearing their highs made this summer.  Plus, the market is in the over bought territory tonight.  The volume was better than average but not as much as we saw last week.  Many technical indicators in today’s market were just not what you would like to see for a good start to an up move.  

We have said that the market will make a new low for the move during this month and today’s rally helps destroy that theory.  We don’t want to be stupid about staying in our positions but our indicators are over bought and not as strong as we have seen.  

The news for consumption really isn’t that good either.  Today we saw a new world record trade deficit around $66 billion for the month.  GM hit a 23 year price low today.  Delta Airlines reported a $1.13 billion loss.  The tech group’s darlings CSCO and DELL have basically fallen down and they can’t get up even in a market like today.  

But, INTC saved the day today by announcing an increase in their dividend and a $25 billion stock buy back.  One of my reads tonight said that INTC only has $12 billion in cash so there might be a windfall somewhere.  The lottery is only at $25 million for Saturday night.  The article also mentioned that their cash position dropped from last quarter to this quarter so that windfall better hurry up.  Of course, company buy backs that are announced in advance don’t Have to happen either.  

The University of Michigan Consumer Sentiment Index did improve and was above expectations.  The bonds had a good day today but that isn’t necessarily good news for the stock market.  The bonds are in a fairly strong down channel that I have hoped would be broken to the upside for a short upside run.  Today just gets them back to the top of the channel.  We would need to see a bit of a breakout from here to feel like a good strong rally was in the making.  (Refresher, down channel means that the bonds are in a little downward sloping zigzag pattern.  The breakout would mean the down channel was broken and the bonds could move up.  If bonds move up, then rates move down.  Got that?)

Friday is Veteran’s Day and the banks are not open so the bond market is not open either.  The stock market is open but without bonds trading and with banks closed, trading should be subdued.  We are looking for a calm day on Friday and will report any new information on Sunday evening.  Have a good weekend.

Dow Industrials:  10,640.10  +93.89
RYVNX:  19.46
TLT:  89.44
BGEIX:  12.64

Wednesday, November 09, 2005

CSCO Disappoints

Today being Wednesday, you might think that we would have a lot to say.  Instead, the market has turned fairly dull again and there is little to talk about.  In terms of news, GM said it would restate earnings for 2001 and maybe more.  GM’s price decided to drop to the lowest level since 1992.  We’re certain that Kerkorian is not that happy about the whole GM idea.  You may recall, his comments about taking a large stake in the company pushed the price up momentarily to 31.50 from a low of 25.48 about a week before. The price has slid almost daily since then to today’s closing price of 24.63.

CSCO announced earnings tonight.  The earnings news wasn’t bad but the guidance for the next quarter’s revenue was less than the market wanted.  The stock initially liked the numbers and rallied above 18 but by the end of the evening session the stock dropped down to 17.40.  

Tomorrow, we hear from DELL who issued a warning last week.  This stock has had a rough go of it since last quarter’s earnings release.  The stock was trading around 40 back before then and tonight it closed at 29.  This is a rather large drop in a “bull” market run.  DELL did not participate in the October rally that moved into November.  

Precious metals had some luster today as gold moved up about $6.50 and the HUI was mostly in line with that up 7.20.  It was a nice day in the complex but we are maintaining a stay away attitude for now as we wait for better prices in the mining shares.  

Our attitude for the stock market is that we have seen the run that we are going to see.  We have thought that the excitement of last week would turn into a steady market so the bullishness can be felt by all comers.  People like to buy in this type of market, one that has moved up and is basking in the sun.  We usually think this is a good time to Sell, not to enjoy the scenery and buy.  The move might be followed up by another strong move up but I doubt that is going to happen.  More likely the market will continue its dull trading here for another day or two and then start heading down into the end of the month.  The bulls are tired, as well as fat and sassy right now.  

Dow Industrials:  10,546.21  +6.49  (another powerful up day)
RYVNX:  19.97
TLT:  88.36
BGEIX:  12.74  (time to start watching this one again)

Tuesday, November 08, 2005

TOLL Takes a Toll

This morning caught the Toll Brothers with their pants down, no just their earnings guidance was down.  The report in the Wall Street Journal on Wednesday will report that orders rose 1% in their fiscal fourth quarter ending October 31.  A UBS analyst said she expected 22%.  Orders fell 10% in the Mid-Atlantic, 5% in the Midwest, and 50% in the West.  Toll Brothers dropped 14% today on that news taking the HGX, Philadelphia Housing Sector ETF, down 5% with it.

I think we are seeing more and more evidence that the housing juggernaut is slowing receding.  If you were to look at a chart of the HGX you would see a large rise since the beginning of 2003, shortly after it started.  The price started near 200 and topped out in the first week of August this year just over 585.  So, the Bond market topped out in June, the HGX topped out in August, the hurricanes were in September and here we sit in the midst of a stock market rally.

Now, Toll Brothers, TOL, said that consumer confidence has dropped resulting in people taking more time to make decisions on purchases.  They also cited the recent spike in gas prices after the hurricanes.  I’m a little confused by this since they service the luxury market supposedly.  Why would the luxury market worry about the price of gas???

Anyway, TOL traded at a record high of 58.67 in late July and closed today at 33.91.  The housing sector has been the big stock market leader for the past three years and now it has lost its leadership quality.  This is not a good thing for the economy or for predicting a bullish trend going very far into the future, when the leaders fall, the rest run away.  

Today’s market was again dull trading very little volume and trading down just a bit.  We stick to our bearish stance and advise that you be very careful.  The market has given you some confidence for a bright Santa Clause rally.  You should be careful that you don’t get a lump of coal in your portfolio.

Dow Industrials:  10,539.72  -46.51  (still in the 10,500’s)
RYVNX:  20.01
TLT:  89.28


Monday, November 07, 2005

Market Up Again

Today the market decided to sit on its hands.  Yes, the Dow was up about 55 points but the dullness of trading was evident in the light volume.  For Monday, the market was not as strong as one might have imagined.  The market has begun to roll over again and probably will catch many off guard.  There are so many people right now who are willing to believe the bullish scenario of the year end rally.  We have seen a powerful rally for the last week and of course immediately everyone is bullish.  At the same time, many stocks are not trading with any real strength.

We continue to think that the market can drop into the end of the month and we are voting with our pocketbook.  Yes, we have lost some money over the past week but the possibility of a rout was high about two weeks ago.  That was averted and here we are again in the 10,500’s with the Dow.  

The precious metals are still looking lower and we see some of the stocks in the group as beginning to show signs of holding up in the face of declining gold.  In order for us to get excited about the mining stocks, we need to see the metal drop while the stocks kind of hold.  This could be starting as we speak.  We will be watching this carefully over the next two weeks and looking for some good entry points. The dollar broke to a new high for the move above 91 and that is hurting the metals prices, just something else to help us find a good entry point.

The real estate market keeps getting bad news.  The interest rate on fixed rate home mortgages now sits right around 6.3% after being around 5.5% in July.  This along with the news on the proposed tax law changes is starting to wear down the real estate market.  The housing boom may be ready to take a breather.

Dow Industrials:  10,586.23  +55.47
RYVNX:  19.98
TLT: 88.42

Sunday, November 06, 2005

New Week, New Challenges

I guess the big news today, although not really a Wall Street item, is the tornado that hit the Evansville area. The national news carried some of the story today as we continue to see the weather do unusual things. An F3 tornado is not something that normally occurs in the wee hours of the morning in the middle of November. We hope that everyone there is ok.

The jobs report on Friday was quite weak and well below expectations. Some of us would have expected that to help the bond market a little but it continued its Bernanke retreat. The dollar jumped for some reason but it wouldn’t seem that the jobs report would have caused it. A weak reading from the jobs should translate to a weaker interest rate environment but when the dollar didn’t get sold after the jobs report, they seemed to just go ahead and buy it.

Precious metals, taking their lead initially from the jobs report by jumping on the weak data, dropped in response to the dollar’s exceptional strength. Gold was initially up about $3 on the jobs and ended up dropping $9 from there, down about $6 on the day and ending down about $5. The currency markets (forex for foreign exchange) and the precious metals showed the most response to the jobs market. The stock market was subdued.

We start a new week and with it we start to deal with new challenges. There seems to be much bullishness in the press over the weekend about the prospects for the rest of the year. We do not hold the same opinions due to the lid we see the market has built for itself over the past couple of years. There is always a chance that the market can break out from here but since it hasn’t we must remain bearish. Yes, we missed this latest move out of the October lows but the October highs are still in place for most of the major indexes. Most, except for the one we are short in the RYVNX which has broken below our entry point. We think it a matter of a couple weeks before we are back to the lows of the October in the major indexes. This week’s trading will be telling.

By the way, Erick, please share the picks that you alluded to in your latest comment. We do want to be ready for a bit of a rally out of the lows we are expecting here in the next couple of weeks.

Dow Industrials: 10,530.76 +8.17 (10,500 still)
RYVNX: 20.01
TLT: 88.12

Thursday, November 03, 2005

10,500 Again

Friday brings the jobs report that may be important again.  We haven’t mentioned it much here in the past several months because we haven’t felt that it really has any merit as a market maker.  This number has the potential to provide some interesting fireworks.  When you read this, the news may be behind us with your view clear as to what has already happened.  But, from this side of the news, there could be some volatility.  

We have witnessed a very strong market for the past week and we are again looking at Dow 10,500.  I really didn’t think that was possible again after the good drop we had in the last month but here we are again.  The bulls will tell you that we are ready to march upward into the year end rally that “always” happens between October and December.  We caution you with the words of the market.  The Dow may be back to 10,500 but the broader market is not back to where it was and you need to make sure that your holdings are moving consistently with the market.  Obviously some momentum stocks have made some good moves, particularly GOOG.  All that move tells us is that the market is frothy again with a lot of speculation.  

We think the end of the month beginning of the month strength has produced this rally and was aided by some short covering.  We, of course, can’t prove that but it seems reasonable that the shorts got squeezed a bit.  What we do know is that one of our favorite indicators has gone red hot and that is the 5 day upside volume.  We like this indicator as a short term top indicator and it is the highest it’s been on my data.  We have seen high volume and a lot of buying and feel there is NO fear at all in buying.  We don’t believe this can last much longer and probably not a day longer.  At least this pace can not be sustained for much longer.  

We will probably add to our short type positions in the next day or two depending on what happens.  The other possibility is that we anticipate the gold market to give us a buying opportunity in the next couple of weeks.  The HUI seems to have slowed its drop and has now started to pull the metals prices down too.  The timing of this is going to be reported here as soon as we see a good entry point.  We think the HUI can drop another 5% to 10% so we would like to see a little bit better prices before we dive in.

I recommend selling some of that AIG stock at these nice prices.  That stock has had a very nice run in spite of hurricanes and higher interest rates, back near 70, amazing.  

Since it’s Thursday evening, we won’t be back here until Sunday evening so have a good weekend and be careful in this market.  

Dow Industrials:  10,522.59  +49.86  (Unbelievable)
RYVNX:  20.19  (losing money here too now)
TLT:  88.26

Wednesday, November 02, 2005

Just Another Bullish Day

We don’t have much to say this evening as the market wants to continue on this upward course.  The tech sector certainly shined today, at least other than the sink holes that existed in the sector.  INTC made a good run today and provided some support to the indexes that it is in, this after DELL’s news yesterday.  

We have known about this end of month, start of month, strength in the market and I guess we should have covered some of our shorts in anticipation of this move.  The evidence is that the market is bumping up against resistance here.  The Dow Industrials was the weakest index on the day due to its close proximity to a lot of overhead supply.  The broader indexes were up quite a bit more due to their distance from the resistance above.  We continue to think the market will top out below the highs of the last few months and head down into the end of the month.  

We have some big news items the next two days, including the ISM non-manufacturing index tomorrow and the October jobs report on Friday.  The market seems to think the October lows will be the place to spring board from and so far that is what has happened.  The market has shrugged off the interest rate increase and now will face shrugging off the jobs report on Friday.  It can do that but the over head supply is still there waiting to be sold to the highest bidders.

I guess we just have to wait until Friday to see what is going to happen.  The run up today was on heavy volume and seems to be using itself up, at least towards the end of the day.  We can only suppose that there will be fearless buyers going into Friday’s report.  We are in the no news period for earnings and the market can get a little braver during this period and seems to have done that.

Dow Industrials:  10,472.73   +65.96
RYVNX:   20.78  (still above our entry point)
TLT:  88.86  (ouch)

Tuesday, November 01, 2005

Another Month, Another Rate Increase

The stock market took a breather today and waited patiently for the Fed’s announcement that it was indeed raising rates another 25 bps, not much of a surprise unless you’ve been on walkabout in Australia for the last two years.  I remember the good old days when the Fed making a move in interest rates was newsworthy, these days it’s become old hat.  Oh, the Fed’s raising another 25 bps, pass the salt.  

The world received another round of the same medicine that the Fed has delivered for the last 12 meetings.  It’s like boiling a frog.  They say that if you put a frog in lukewarm water and then turn up the heat slowly, the frog just relaxes and then gets boiled.  As market participants, there are so many people who are that frog.  The Fed keeps cranking up the interest rate heat but everybody just stays in the market.

Well, the owners of DELL decided they didn’t want to stick around too much today as it got sold for about 8 percent to a price level not seen since early 2003, on volume of over 100 million shares.  The immediate beneficiary of that news was their beloved partner Intel Inside, INTC, who dropped almost 4 percent today on 85 million shares.  That drop to 22.65 pushes INTC down to within a point of the 52 week low at 21.89.  

In the news today, besides the Fed, oh that’s right, that wasn’t news.  In the news today, the ISM manufacturing number was 59.1 with anything above 50 being positive.  The expectation was for a drop from 59.4 to 57 so the number beat expectations.  On Thursday we get the ISM non-manufacturing number which is widely expected to show a good increase from 53.3 to 58.  

US auto sales slumped 14% in October, not a very good showing as higher gas prices and the end of employee discounts are being blamed for the slide.  

The Wall Street Journal will be reporting in Wednesday’s edition that “REIT Stocks Battered By Earnings Disappointments”.  We keep watching for these types of articles suggesting that the housing juggernaut is slowing down.  We have seen enough articles in the last several months to start believing, that is, if we hadn’t believed before.  Right now, the media is just confirming our suspicions.

The market is finally out of oversold territory and is moving in the direction of being overbought.  We think that the week will have trouble sustaining a positive tone.  There are so many people that want/need a higher market and we don’t think it will oblige.

Be careful.

Dow Industrials:  10,406.77   -33.30
RYVNX:   21.33
TLT:  89.28