The market has a mind of its own and decided not to listen to a thing we said in our last post. The market did not gap lower on Wednesday morning as we expected but did manage to drop a little before moving up and down the rest of the day. What can be said about this market is that it’s not dull. The volatility exhibited in the markets over the past few days can be very difficult to trade and we would advise against it even thought it can be fun to try to catch one of the waves up or down. This market is not for the timid.
There were other surprises besides the no gap down opening like the housing number. April new home sales Rose by 4.9% even with expectations of a drop of 5.2%. The durable goods orders were down 4.8% versus a flat expectation. Later the Commerce Department said that businesses orders for capital goods dropped in April. These numbers are not giving the market clear insight into what is going to happen. The Fed has said that the numbers will be used to see if rates need to be raised again or not so all eyes are now focused on these reports. Since the next Fed meeting is not until late June, the market has no fear at this time making buy and sell decisions.
Thursday we get to see what the GDP was in first quarter as well as April existing home sales. These numbers will be scrutinized and probably bought—meaning that buyers will be assured that for the time being there is no reason not to buy stocks. We say this due to the fact that there is no fear in the market anyway and that we are getting very oversold and we are heading into a holiday weekend (and the end of the month), all of which should provide some support to the market in general.
Still, this market has shown its ability to get sold for no reason at all over the past two weeks. Even with a modest rally over the next week, the market can still drop hard after that. We recommend extreme caution in the market and of course recommend selling any rallies.
The precious metals were smashed on Wednesday with gold dropping $36 or about 5% on the day. This decline has been predicted by the mining stocks as they have been dropping more than the gold for several weeks now. In fact, the mining stocks are starting to look a little more interesting at these levels so we are going to be paying more attention to them over the next several weeks. If gold continues to drop with the precious metals stabilizing we can start to think about getting back into them. Our favorite little silver stock, PAAS, dropped into the low 18’s today after trading as high as 27.68 back on March 30th. That’s a 1/3 loss in less than two months.
Be careful out there…
Dow Industrials: 11,117.32 +18.97
RYVNX: 21.43
RYAIX: 23.68
TLT: 84.60
BEGBX: 13.62
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