Gold at $700

Surely someone has noticed that gold has now touched $700 an ounce.  What is less visible is the dollar dropping for the last month.  Normally, you do expect these two to travel in different directions as they are now doing; but, the central bankers don’t really like to see gold at such a high price due to the obvious reflection on the inflation rate.  

On Wednesday when the FOMC makes their announcement of a 25 bps rate increase, again, they will also make some other statements about the future of interest rates.  The market seems overly interested in this number, but only because the Fed may signal a Pause in their rate hiking ways.  As these words emanate from the group, the market will then be in a position to decide whether it likes the news or not.  From our perspective, the market has been anticipating this Pause for so long that we don’t believe it can be greeted with any more than a sell off.  The time is right for a down move and the jobs report last Friday along with whatever the Fed says on Wednesday afternoon (1:15 CDT) should provide plenty of downward motion, not that either of these is bearish necessarily.  The reason they are bearish is that the market has been going up on anticipation of a weak economy and therefore a reason to slow interest hikes so when it actually happens we don’t think the market will really like it but they surely will have few people left to buy.

So, while all eyes are on the Fed, the tech sector seems to be suggesting some difficulties.  Monday evening it was DELL who lowered guidance (for the third time since August) and Tuesday evening it was CSCO who had what was perceived to be good news on the initial announcement.  The company, in the conference call, was not overly optimistic about the future which led to later selling.

Just a quick note on the rally in the Dow before we close the post for this evening:  The Dow seems to be up every day and Tuesday was no exception with another rally of 55 points.  We watch the broader market and there is very little participation in this rally.  The NASDAQ Comp was down 6 points while the Dow was up 55.  The Dow has made new relative highs for the past four consecutive days while the Comp has a couple of percent to go to get to a new relative high.  These are not particularly bullish views on the market.  Remember that the Wednesday Update has been partial to getting out of Tech stocks including INTC, MSFT and others.  These stocks have not performed very well in this glorious Dow rally.  These are signs that need to be heeded.  And, you should…

“Sell in May and Go Away” and Be careful out there.

Dow Industrials:  11,639.77  +55.23
RYVNX:   18.26
RYAIX:  21.85
TLT:  83.60
BEGBX:  13.49