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

1 comment:

Anonymous said...

Just wanted to send a quick note to say how hard it is to be bearish as the markets climb. Maybe some of the rest of you feel the same way from time to time. I even found myself looking at a stock pick recommendation article out of WSJ. The article focused in on value stocks with positive free cash flow. It included companies that pay greater than 1% dividend yields and after all expenses are paid still have a substantial amount of cash to sit on. ADM was one on the list. I'm not buying but I thought about it. Then I reminded myself how great it would be to buy all the 5 stocks listed below the prices quoted in the article.

If nothing else, it may help to ID some value plays once it is time to jump in.

Erick